Mutual Fund types are a popular investment scheme where funds taken from a number of investors are pooled into a single unit by Investment companies, agents and then collectively invested in the market.

Furthermore, this helps the investors by considerably reducing the risk which is a prominent feature of the Mutual Funds investment. However, the risk returns and other aspects of mutual funds vary with the diverse kind of mutual fund types available in the market.

Mutual funds types

Growth Funds

  1. The purpose is the appreciation of capital.
  2. More suitable for long-term investment or when seeking higher returns.
  3. High-risk funds.

Income funds

  1. Its purpose is the protection of capital as well as generating income to the investors at a regular interval.
  2. Moderate to the High risk involved.
  3. However, it is suitable for people looking for returns at regular intervals.

Tax-saving funds (ELSS)

  1. Its Purpose is to earn tax benefits.
  2. Investments are made primarily in equity shares.
  3. High Risk and High Returns.

Liquid Funds

  1. The purpose is the liquidity provision.
  2. Short and very short-term based investments.
  3. Normal to moderate returns but low-risk investments.

Capital Protection Funds

  1. The purpose is the protection of capital as the name suggests.
  2. The investment is made in equity markets as well as markets with fixed income instruments.
  3. Moderate to high risk and proportional returns.

Fixed Maturity Funds

  1. Investments are made on debt instruments.
  2. Investments are also made on money market instruments.
  3. The expiry of these instruments is on the same day as that of the fund or before that.

Pension Funds

  1. The purpose is to prepare for retirement by ensuring some form of financial security.
  2. Investment is of a mixed nature, i.e, made both in equity markets as well as debt markets.
  3. A balanced risk and returns based investment, equity markets holding the higher risk as well as returns while the debt markets ensuring lower risk but only lower returns as well.
  4. Returns can be taken in a regular mode or a lump sum mode or a combination of these two.

Mutual Fund Types based on Risk

Low Risk

  1. Low risk means safety and these are most suitable for those who don’t like to take chances with their money.
  2. Investments are made in debt markets or securities, usually.
  3. Long-term investments but low returns.

Medium Risk

  1. Medium risk defines a sort of balance. It’s the middle point between low risk and high-risk mutual funds, most suitable for those who want to take certain risks but seek security as well.
  2. May range from medium to long terms, with a varying range of returns.

High-Risk Funds

  1. High-risk funds yield their worth. Only a certain number of investors head this way for the serious risk involved, who seek the considerable increase in their wealth, like inverse mutual funds.
  2. Furthermore, the term of the investment may vary from medium to long terms, with a promising scope of high-end returns.

Types of Mutual Fund based on Asset Class

Equity Funds

  1. Investments made in the equity shares or stocks of companies.
  2. May include some specialty funds like fast moving consumer goods, banking, etc.
  3. High risk and High returns based funds.

Debt Funds

  1. Investments are made in debt instruments like government bonds or fixed income assets of other types.
  2. Low risk and moderate fixed returns. (Safe funds)
  3. No deduction of tax at source. Investor liable to pay tax if value crosses Rs. 10,000.

Money Market Funds

  1. Investments are made in liquid instruments.
  2. Moderate but immediate returns.
  3. The moderate risk associated. Various kinds of risk involved are interest risks, credit risks, reinvestment risks.

Balanced (Hybrid) Funds

  1. Investments are made in both equity and debt markets, thus balancing the effects of two.
  2. Risks and Returns depend upon the proportion of investment made in the two sort of markets, where equity markets offer high returns on high risk while the debt markets provide low returns on low risk.

Mutual Fund Types based on Structure

Open-Ended Funds

  1. The main feature is that the units are available for purchase or redemption (sale or transfer) through the year.
  2. No limits on investment or term of investment or reinvestment.
  3. No fixed maturity period enables the investors to encash their investments as per will.
  4. Mostly require pro-active management and therefore mostly professionals (fund managers) charge some fee in consonance with the job profile.

Closed-end Funds

  1. The units can only be purchased during the initial offer period.
  2. There’s no flexibility of redemption as in open-ended funds.
  3. Units can’t be dealt with as per wish as in open-ended funds.

Interval Funds

  1. Mixed nature of funds incorporating both features of open-ended as well as closed-end funds in the form of availability of shares at regular intervals during the term of the investment.
  2. Investors can sell shares to the fund company upon offers made by such company.

Types of mutual funds based on Speciality

Sector Funds

  1. Sector-oriented investment, i.e, the investment is made in specific sectors of the market.
  2. Risk and returns are therefore proportional to the nature and status of that status.

Fund of Funds

  1. Also known as Multi-manager funds.
  2. These funds are collected and invested in other mutual funds & return which are chosen on the basis of the performance of such funds in the market.
  3. It is understood as somewhat safer than the other funds as the investments are made in funds which themselves are invested in funds, which adjusts the risk factor accordingly.

International funds

  1. Also called foreign funds.
  2. Investments are made in companies in various nations.
  3. Only the companies in the investor’s own nation are excluded under this tag.

Global funds

  1. Investments may be made in any region or nation of the globe.
  2. No nation is included and the investment may be made in the investor’s own nation too.

Index funds

  1. The investments are made in a particular index on an exchange.
  2. They represent the relative position and returns of that index.

Emerging Market funds

  1. Investments are made in the developing countries to bank upon the newly created opportunities which shall yield high returns once the market rises in that country.
  2. However, risks are usually higher due to various factors of influence like politics and economy of the countries involved.

Market Neutral funds

  1. No direct investments are made.
  2. Investment’s objectives are to attain a fixed and steady growth.

Commodity focused stock funds

  1. Investments aren’t directly made in the commodities but in the companies that work in the commodity market (like mining, etc.).
  2. Risk and Returns are often a direct consequence of the performance of the product in the market.

Real Estate funds

  1. Investments are made in companies working in the real estate sectors.
  2. The flexible scope of investment as it can be made at any stage of the process, usually.

Asset Allocation funds

  1. It can be split and invested in multiple instruments, by adjusting the allocation of assets accordingly.
  2. Two variants exist, which are Target Date fund and Target Allocation fund.

Leverage or Inverse funds

  1. They don’t function like traditional mutual funds.
  2. The returns are usually inversely proportional to the progress of the market. If markets fall, the returns are high and vice versa.
  3. However, high risk and potential of high returns.

Gift Funds

  1. Long-term investments are made in government securities.
  2. Very low risk, almost free of it (virtually) and returns are gained accordingly.

Exchange traded funds

  1. Mix-based mutual funds.
  2. Their elements are both open and closed-end mutual funds.
  3. Require passive management with low service charges, while offering high liquidity.

However, mutual funds come in different forms and designs in these times, due to the immense development in this sector. Accordingly, it becomes important to identify the suitable mutual fund types for yourself and Finbucket is always there to help you out in this.

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