In the financial market, investing in mutual funds stands out as a versatile accessible option for investors. Understanding the various types of mutual funds is essential for making informed investment decisions. In this article, we will explore the universe of mutual funds. We will be taking an in-depth look at the various kinds of mutual funds and what distinguishes them from each other throughout this article.

Our goal is that after reading about equity funds, debt funds, hybrid funds, index funds, sector funds, thematic funds, and international equities; you will have enough knowledge on these topics so as not only to make better decisions but also understand more about where your money is being invested too. Types of Mutual funds based on different criteria like investment objective asset class risk profile and structure.

A) Types of Mutual funds by investment objective

1) Equity Schemes

Equity Scheme funds are a type of mutual funds referred to as equity funds that primarily invest in stocks or equities of companies. The main goal of this fund is to achieve capital appreciation over the longer period of this scheme. It also offers benefits from the growth potential of the stock market to investors

This scheme maintains diversified portfolios across different sectors and industries to mitigate risk. it follows various investment strategies based on factors like market capitalization sector focus and risk tolerance. Equity Funds come with market risk with high potential returns hence making them suitable for those investors who has plans to invest for a longer period.

2. Income or Debt Schemes

Income or debt schemes are a type of mutual fund that mainly invests their money in fixed-income securities like government or corporate bonds to provide regular income to investors while preserving capital. This scheme offers lower risk than equity funds with risk including interest rate, and liquidity. These schemes allow investor to redeem their units as they want.

3. Balanced Scheme

A balanced scheme is a type of mutual fund. It is also called a hybrid fund that invests money in stocks and government bonds to provide investors with a middle ground between growth potential and stability. These funds manage risk effectively by holding a mix of stocks and bonds. When stock prices rise they can enhance their returns and when the stock price goes into a downtrend, bonds help cushion the impact, providing stability to the portfolio.

4. Money Market or Liquid schemes

Money Markets or Liquid schemes are also types of mutual funds that focus on investing funds into Low-risk securities for the period of short term such as treasury bills, commercial paper, certificates of deposit and other money market instruments. This scheme is specially designed for investors to provide slightly higher returns than traditional bank fixed deposits or savings accounts with a high level of liquidity and capital preservation.

5. Tax Saving Schemes

Tax Saving Schemes are a type of mutual fund. It is commonly known as Equity Linked Saving Schemes (ELSS) in India. Tax Saving Scheme is specially designed to provide tax benefits under section 80C of the Income Tax Act to investors. This scheme primarily invests in equity and equity-related instruments to generate long-term capital appreciation while at the same time reducing the tax liabilities of investors. It comes with a three-year locking period.

Fund Managers of this scheme maintained a diversified portfolio, and spread risk across different sectors and market segments by investing. Investors have two options to choose between lumpsum investment or systematic investment plans(SIPs)

6. Gilt Schemes

Gilt schemes are a type of mutual fund that mainly invests in Government securities, commonly known as gilts. The gilt scheme is mostly suitable for those investors who are seeking stable returns and capital preservation over a long period because this scheme is a low-risk investment because it involves lending money to the government.

Typically Government is a secured borrower hence gilt funds can offer steady income through interest payments and potentially benefit from capital appreciation if interest rates decline to investors.

7. Index Schemes

An index scheme is also called an index fund and it is a type of mutual fund. Fund Managers of an index fund primarily invest in specific market indexes such as the S&P 500 or the Nifty 50.

Index schemes have inherent diversification hence investing in index funds that automatically spread risk across a wide range of securities. This diversification helps investors to mitigate the impact of volatility in individual stocks or sectors.

This scheme offers a simple cost cost-effective and diversified way to gain returns from the stock market to investors with its passive management style, broad market coverage and transparency.

8. Sector schemes

A sector scheme also known as a sector mutual fund invests in a specific sector of the economy such as Energy, Finance, Technology or healthcare. The main object of these funds is to gain returns through the growth of specific sectors that are managed by the fund manager. investing in a sector scheme gives higher returns for investors but however it’s essential to note that investing in sector schemes comes with higher risk too because of concentrated exposure to a single sector.

9. Exchange Traded Fund

An exchange-traded fund (ETF) is an investment fund that is traded on a stock exchange, such as individual stocks. Generally, ETFs have a combination of stocks, bonds, commodities and other assets in their portfolios and they aim at following the performance of a given index or benchmark. ETF offers the possibility to diversify investment across whole markets or asset classes with just one product. It provides Liquidity, transparency and low cost are some of the reasons why investors find them attractive.

being bought or sold throughout the day at market prices makes them flexible for accessing underlying assets and also expense ratios usually tend to be lower than those for traditional mutual funds which may suit well cost-conscious investors too. Equity ETFs, bond ETFs sector ETFs thematic ETFs are examples of different types available according to various investment objectives or preferences.

ETFs provide wider exposure over several types of investments while still maintaining their characteristic liquidity transparency cost efficiency benefits which has made them increasingly popular among many savers who want exposure to different asset classes but at the same time enjoy the ease with which they can be accessed from an investor’s point view.

10. Fund of Funds schemes

Fund of Funds schemes are a type of mutual fund that invests money of investors in another mutual fund by fund houses rather than directly in stocks, bonds, or other securities.

These fund pools money from investors and allocate it across a diversified portfolio of mutual funds. the primary objective of FOF schemes is to achieve diversification of investment in multiple assets thereby spreading risk and potentially enhancing returns.

B) Types of Mutual Funds by Company Size

1. Large Cap Funds

Large Cap Funds are types of mutual funds that focus on investing in those companies that have large market capitalizations. These funds invest in well-established and financially stable companies that are leaders in their industries. Large-cap companies have good track records of performance, stable income and strong market presence. The main purpose of large-cap funds is to provide steady returns on investment to investors over the long term. being well-established enterprises having passed through many economic recessions in large-cap companies are less risky than mid-cap or small-cap ones.

   2. Mid-Cap Funds

Mid-Cap Funds are a category of Mutual Funds. Mid-Cap Funds invest money into medium-sized market capitalization companies that fall between large-cap and small-cap companies. Mid-cap funds have the potential for growth but may also carry higher risk compared to large-cap funds. The main objective of mid-cap funds is to provide good returns by investing in stocks of mid-sized companies with strong growth potential. These funds target to those company who has a strong management team and solid financial performance.

3. Small-Cap Funds

Small-cap funds are a type of mutual fund that invests in those company who has small market capitalizations. These companies are typically smaller in size than large-cap and mid-cap companies. small cap funds offer high growth potential with exposure to smaller companies to investors. Since small-cap companies are early stages of growth hence they have the potential to grow rapidly and generate substantial returns for investors.

It is also essential to note that investing in small-cap funds comes with higher risk due to the volatility. These funds have experienced significant price fluctuations compared to large-cap or mid-cap funds hence these funds are suitable for those investor who have the capacity to tolerate high risk and the patience to keep funds for longer periods.

C) Types of Mutual Funds by Structure

1. Open Ended Schemes

An open-ended scheme refers to a common type of mutual fund that allows investors to buy and sell units in any quantity, at any time, directly from the mutual fund company at the prevailing Net Asset Value (NAV). Unlike closed-ended schemes which have a fixed maturity period and a limited number of units, open-ended schemes do not have a fixed maturity date; they continuously issue new shares and redeem existing ones depending on investor demand.

The NAV of an open-ended scheme is calculated on a daily basis on the market value of its underlying assets. open-ended funds provide easy access to various types/ranges of mutual funds together with convenience characterized by high levels of liquidity coupled with diversification benefits across multiple industries/regions worldwide if necessary.

 2. Closed Ended Schemes

The closed-ended scheme is an investment type of mutual fund that works with a fixed maturity period and a limited number of units. Closed-ended schemes have a fixed number of units issued at the time of initial offering to investors and they can only buy or sell that unit on the stock exchanges.

3. Interval Schemes

Interval schemes are a unique type of mutual fund. It has a combined feature of both open-ended and closed-ended schemes. This scheme provides flexibility facilities to investor to buy and sell units at predefined intervals typically ranging from a few weeks to a few months. During the specific intervals, an investor can either purchase units or redeem their existing units. but outside of interval periods, the scheme works as a close-ended fund, where investors cannot buy or sell units directly from the mutual fund company.
This scheme is perfectly suitable for investors who prefer a balanced approach.

D) Types of Mutual Funds by Payout

1)Growth Scheme

Growth schemes is also known as growth funds which are a type of Mutual Fund. Growth Funds typically invest in a diversified portfolio of stocks to maximize capital appreciation over the long term. The main object of this scheme is to generate substantial returns for investors by investing in stocks of that company which is rapidly expansion and capital appreciation.

Investors can get the opportunity to participate in the wealth-creation potential of equities over the long term. this scheme provides attractive returns to investors

2) Dividend Payout Schemes

Dividend payout schemes are a type of mutual fund. Returns of this fund get by interest, dividends or capital gains are distributed to investors in the form of regular dividends. In this scheme, mutual fund companies periodically distribute a portion of profit to investors on a quarterly or annual basis.

This fund allows investors to get income from their investment without selling any units of the fund. Dividend Payout Schemes are particularly suitable for investors seeking regular income from their investments, such as retirees or those looking for supplementary income

3)Dividend Re-Investment Schemes

Dividend Reinvestment schemes are a type of mutual fund. This fund is automatically reinvest its dividends into the same mutual fund of investors where they were obtained rather than receiving them in cash form.

In this way, this scheme provides investors with an option to grow their investment over the time period by using the dividends to purchase more units of the fund. by using these options investors can get the benefits of compounding returns which could lead them towards making more money in future than would have been possible had this not happened.

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