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What are the types of mutual funds?

What are the types of mutual funds?

Guest Post | @indiablooms | 01 Oct 2019, 03:38 pm

Mutual Funds are diversified investment program funded by investors like us and are professionally managed.

Investments in mutual funds have increased drastically in recent years. The gained popularity harpoons from the fact that these diversified portfolio investment vehicle has delivered consistent returns. Mutual Funds market is well regulated and people are realizing its potential. This is the reason for the Mutual fund market growing strongly at 15%.

There are a plethora of types of mutual funds. Mutual Fund classification is typically done based on:

● Structure
● Asset Class
● Risk
● Investment Objective
● Specialty

Let’s explore these thoroughly

● Based on the structure open ended Funds: These mutual funds are open to investment and redemption at all times. There is no lock-in period till the specified maturity date. These mutual funds provide greater liquidity as entry and exits to the funds is not restricted

● Close ended Funds: In these mutual funds the units can be purchased only at the initial offer stage and similarly the units can be redeemed after the maturity only. The fees associated with this scheme is lower than open ended mutual fund types.
● Interval Funds: These funds are in between open ended and close ended mutual funds. The investment or redemption option open at a certain interval. The fees charged are between fees charged for close ended funds and open ended funds with medium level liquidity.

● Based on Asset Classes 

● Equity Funds: Investments for these funds are linked to equity stocks/shares of companies. These are considered the highest return providing funds but they also entail high risk. Equity funds can include specialty funds like infrastructure, fast moving consumer goods, and banking to name a few.
● Debt Funds: These are funds that invest in various debt instruments e.g. government bonds, company debentures, and other fixed income assets. These funds do not deduct tax at the source so if the earning from the investment is more than Rs. 10,000 then the investor is liable to pay the tax on it himself.
● Money Market Funds: These are funds that invest in comparatively liquid assets e.g. T-Bills, CPs, etc. They are known for immediate but moderate returns. Money markets are also referred to as cash markets and come with risks in terms of interest risk, reinvestment risk, and credit risks
● Balanced or Hybrid Funds: These are funds that invest in a mix of asset classes described above. In some cases, the proportion of equity is higher than debt while in others it is the other way round. Risk and returns are balanced out this way.

● Based on Risking asset

Funds can be classified to be High risk, Moderate Risk and Low Risk depending on the underlying asset class they are invested in.

● Based on Investment objectives

● Growth funds: Under these schemes, underlying assets are primarily growth equity stocks to provide capital appreciation. These are suitable for funds with profile high risk and high return.
● Income funds: Investments are done in fixed income instruments
● Liquid funds: Investments are primarily done in short-term or very short-term instruments e.g. T-Bills, CPs, etc. to provide liquidity.
● Tax-Saving Funds (ELSS): Investments made in these funds qualify for deductions under the Income Tax Act. They are considered high on risk but also offer high returns if the fund performs well and the investments are in equity.
● Capital Protection Funds: These are funds where funds are split between investment in fixed income instruments and equity markets.
● Fixed Maturity Funds: The funds are invested in debt and money market instruments where the maturity date is either the same as that of the fund or earlier than it.
● Pension Funds: These funds are typically aimed for long term investments for building a retirement corpus.

● Based on Specialty

● These funds are advanced funds that define the scope of the investment universe. They deal with national as well as international assets. Some of these classifications are

● Sector funds
● Index funds
● Funds of funds
● Emerging Market Funds
● International Funds
● Global Funds
●  Real Estate funds
● Gilt funds

The list does not end here has many more items to it. Most of these mutual funds are also available in India for investments.

With so many types of mutual funds, it becomes very important to choose which mutual fund suits us the best. A simple way of choosing the type of fund is to know our risk profile and the time in which we need to meet our financial goals.

Now once you have understood about mutual funds and their types in detail, you can choose appropriate funds from the best performing funds to invest in, for instance, from SBI mutual fund, you can choose SBI Blue Chip Fund if you are looking to invest  , etc.

Below is a list of best performing mutual funds in India, based on past performance, that you can choose to invest in.

Best Mutual Fund to invest in

Fund Name Category NAV AUM (Cr) Expense Ratio 3 Year 5 Year
Axis Long Term Equity Fund ELSS (Tax Saver) Large Cap 31.12 5,745 0.84 13.81% 11.14%
SBI Blue Chip Fund Large Cap 40.106 21484` 1.89 7.35% 10.30%
Axis Midcap – Direct Fund Mid Cap 38 2819 2.17 12.27% 11.90%
Kotak Emerging Equity Mid Cap 38.14 4470 2.04 6.73% 12.96%
HDFC – Small Cap Small Cap 39.206 8209 2.10 8.32% 11.33%
L&T emerging business Small Cap 22.72 5639 2.02 7.88% 12.78%
Mirae Asset Hybrid Fund Hybrid 14.84 2429 2.01 10.04% -
SBI Equity Hybrid Fund Hybrid 139.89 29354 1.65 9.66% 11.06%
ICICI Prudential Saving Debt 373.55 19925 0.5 7.67% 8.24%
SBI Saving  Debt 31.285 9496 0.23 7.79% 8.36%

Disclaimer: This is just a list of well-performing funds based on past performance and not a recommendation. Please invest according to your risk profile and investment objective.

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