Types of Mutual funds in India based on investment goals, asset class, risk and more

Wondering about the different types of mutual funds? Here, we categorise them based on asset class, investment goal, structure, and more

By Forbes India

Published: Sep 27, 2023 11:45:32 AM IST

Updated: Mar 18, 2024 05:28:36 PM IST

A mutual fund is an investment vehicle that pools money from multiple investors to put into a diversified portfolio of stocks, bonds, and other securities. Mutual funds offer individuals a convenient way to invest in various assets, providing diversification and professional management. In this blog, we'll navigate the many types of mutual funds. Whether you're an experienced investor or only starting, our guide should help you make informed decisions when deciding the best mutual fund for investment.

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Types of Mutual Funds Based on Asset Class

There can be various differentiating factors when naming the types of mutual funds. Going by asset class, here they are:

Fund Name	Description	Allocation
Equity	Invests in stocks	Variable in large-cap, mid-cap, small-cap
Debt	Invests in bonds and debt securities	80-100 percent
Money market	Focuses on short-term, low-risk securities	Variable
Hybrid	Mix of stocks and bonds	Variable

Equity Funds

Equity funds invest in stocks or equities of different companies. These mutual funds suit those seeking long-term growth and are ready to accept the accompanying market risk.

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Debt Funds

These types of mutual funds pool money in fixed-income securities like bonds and serve as an ideal mutual fund for investment for conservative investors.

Money Market Funds

These mutual funds invest in short-term, low-risk instruments like treasury bills. They are a safe place to park surplus cash, offering stability and liquidity.

Hybrid Funds

These types of mutual funds blend equity and debt in a single portfolio. They are an ideal mutual fund for investment for those looking for diversification and moderate risk.

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Types of Mutual Funds Based on Investment Goals

The types of mutual funds judging by one’s investment goals would be:

Fund Name	Description	Allocation
Growth	Aims for long-term capital appreciation	Mostly in stocks
Income	Seeks regular income through interest	Primarily in bonds
Liquid	Focuses on high liquidity and safety	Predominantly in liquid assets
Tax-Saving	Offers tax benefits under Section 80C	Mix of stocks and bonds
Aggressive Growth	Seeks high returns with higher risk	Predominantly in high-growth assets
Capital Protection	Aims to protect the capital invested	Mix of low-risk and capital protection assets
Fixed Maturity	Has a fixed maturity date	Predominantly in fixed-income securities with the same maturity date
Pension	Designed for retirement planning	Mix of growth and income assets tailored for retirement

Growth Funds

They focus on long-term capital appreciation, investing in companies with high growth potential. While they offer substantial returns, they come with higher volatility.

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Income Funds

These mutual fund types prioritise providing a steady income stream through dividend-paying stocks, interest-bearing securities and so on.

Liquid Funds

These mutual funds offer safety, liquidity, and a slightly higher return than traditional savings accounts. They are an ideal mutual fund for investment for short-term cash management needs.

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Tax-Saving Funds (ELSS)

ELSS means to combine the potential for equity market growth with tax benefits under Section 80C of the Income Tax Act in India.

Aggressive Growth Funds

This mutual fund type invests in high-growth stocks. These are tailored for investors willing to endure market fluctuations in pursuit of potential high returns.

Capital Protection Funds

These mutual funds primarily invest in fixed-income instruments to protect investors' initial capital, serving as an ideal mutual fund for investment for conservative investors.

Fixed Maturity Funds

These types of mutual funds come with predefined maturity dates and provide predictability in returns.

Pension Funds

These types of mutual funds are designed for long-term retirement planning and balance growth and stability.

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Types of Mutual Funds Based on Investment Structure

The mutual fund types based on investment structure would be:

Fund Name	Description	Allocation
Open-ended	Offers unlimited shares at Net Asset Value	Varies, based on investor demand
Closed-ended	Has a fixed number of shares traded on exchanges	Varies, may trade at a premium or discount
Interval	Combines open-end and closed-end funds	Varies, typically allows limited redemptions at specified intervals

Open-Ended Funds

This mutual fund type allows investors to buy or sell shares anytime. They are an ideal mutual fund for investment for those who want to adjust their investments in response to market conditions or personal financial goals.

Closed-Ended Funds

These have a fixed number of shares and trade on secondary markets. They often come with a specified maturity date.

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Interval Funds

Interval funds blend features of open-ended and closed-ended funds, allowing investors to enjoy periodic liquidity while maintaining structure in their investments.

Types of Mutual Funds Based on Risk

Going by risk, here are the mutual fund types:

Fund	Description	Allocation Percentage
Very-Low Risk	Focuses on capital preservation with minimal risk	Predominantly in low-risk assets
Low-Risk	Aims for steady returns with relatively low risk	Mix of low to medium-risk assets
Medium-Risk	Balances risk and return with moderate risk	Mix of low to high-risk assets
High-Risk	Seeks potentially high returns with higher risk	Predominantly in high-risk assets

Very-Low-Risk Funds

These funds primarily invest in safe assets like government bonds and money market instruments.

Low-Risk Funds

These generate modest returns through a mix of fixed-income securities while preserving capital.

Medium-Risk Funds

This mutual fund type balances safety and growth by diversifying across asset classes.

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High-Risk Funds

High-risk funds focus on assets with higher volatility, such as growth stocks, emerging markets, and so on.

Specialised Mutual Funds

Aside from the many types of mutual funds mentioned above, some special mutual funds do not fit under any of the aforementioned categories.

Fund Name	1-Liner Description
Concentrates on a specific industry or sector	Sector
Passively tracks a market index	Index
Invests in other mutual funds	Fund of Funds
Focuses on developing economies	Emerging Market
Invests in foreign markets	International
Invests in both domestic and foreign markets	Global
Invests in real estate properties or securities	Real Estate
Focuses on commodity-related stocks	Commodity-Focused Stock
Aims to generate returns regardless of market direction	Market neutral
Profits from declining markets	Inverse
Allocates across various asset classes	Asset Allocation
Facilitates charitable giving	Gift
Trades on stock exchanges like individual stocks	Exchange-Traded

Sector Funds

These mutual fund types are favoured by those who have strong convictions about specific industries or wish to diversify beyond broad market exposure.

Index Funds

Index funds aim to replicate the performance of a specific market index, such as the S&P 500. Those seeking a cost-effective way to gain exposure to the overall market prefer these mutual fund types.

Fund of Funds

This mutual fund type is an efficient way for investors to access multiple investment strategies and asset classes within a single fund.

Emerging Market Funds

This mutual fund type offers growth potential but can experience higher volatility due to economic and political factors in emerging markets.

International Funds

This mutual fund type appeals to investors who want to capitalise on international growth.

Global Funds

These can be the ideal mutual funds for those seeking a comprehensive solution to access diverse markets.

Real Estate Funds

This mutual fund type is attractive to those interested in real estate but want to avoid engaging in direct property ownership.

Commodity-Focused Funds

This mutual fund type provides exposure to commodities like precious metals, oil, or agricultural products, offering a hedge against inflation.

Market-Neutral Funds

This mutual fund minimises market risk and appeals to those interested in alternative investment strategies.

Inverse Funds

This mutual fund type is ideal for those who seek to profit from bearish market conditions.

Asset Allocation Funds

These mutual funds dynamically adjust their portfolio mix based on market conditions and the fund manager's strategy. They are appealing to investors who want an actively managed, diversified portfolio.

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