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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
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.Also Read: Long term capital gains (LTCG) tax: Rates, calculation, and more
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.Also Read: Top 10 equity mutual funds in India to invest in 2024Debt 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.Also Read: Stock market timings in India: Opening and closing time of BSE and NSE share marketsTypes 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. Also Read: Mutual fund stress test: Methodology and test results for small and mid cap fundsIncome 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. Also Read: What is the price-to earnings (P/E) ratioTax-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.Also Read: Cost inflation index (CII) for FY 2023-24 to calculate capital gainsTypes 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.Also Read: Section 80C: Income tax deduction and limits under section 80C, 80CCD in 2023Interval 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. Also Read: Cost inflation index (CII) for FY 2023-24 to calculate capital gainsHigh-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 |
