What are the Different Types of Mutual Funds?

Types of Mutual Funds-What are the Different Types of Mutual Funds-Mutual Funds and its Types

The funds are used to purchase other securities, primarily stocks and bonds. This is determine by the performance of the securities. When you purchase a mutual fund unit or share, you are purchasing the portfolio’s performance. Let us understand what are the different types of mutual funds in this topic.

Investing in a mutual fund is not the same as investing in stock. You can even invest via SIP. If you are not aware, read about what is SIP in mutual fund for informative purpose. Mutual fund shares, unlike stock, do not allow owners to vote. A mutual fund share is a multi-stock or security investment, not simply one.

Depending on the Type of Asset Class

Investing in Stocks

Equity funds is one of the types of mutual funds which are subsets of stock funds. They invest money from multiple investors in the stocks of various companies. The gains and losses of these types of mutual funds are entirely contingent on the stock market (whether their prices go up or down). Furthermore, equity funds can provide significant returns over time. As a result, the risk of investing in these types of mutual funds is higher.

Debt is Beneficial

Debt funds’ primary investments are bonds, stocks, and Treasury bills. They invest in, among other things, FMPs, Gilt Funds, Liquid Funds, Short-Term Plans, Long-Term Bonds, and Monthly Income Plans. These investments are appropriate for passive investors wanting predictable income (interest and capital gains) with minimum risk due to the fixed interest rate and maturity date.

The Fixed-Income Funds

That’s all. The funds invest in corporate and government debt. Investors will benefit from the fund portfolio. Bond funds are constantly on the lookout for low-cost bonds. These mutual funds have the potential to outperform CDs. Bond mutual funds invest in and sell bonds. A fund that only buys junk bonds is riskier. As interest rates climb, bond funds lose value.

Mutual Funds for Money Markets

The stock exchange is where stocks are traded. Investors invest in the money market, often known as the capital market or cash market. The money market is run by the government, banks, and other financial institutions. This is achieve by issuing assets such as bonds, T-bills, dated securities, and certificates of deposit. The management of the fund invest your money and pay you regular dividends. Investing in these types of mutual funds over a short period of time (no more than 13 months) decreases risk.

The Index Mutual Funds

Index funds are popular right now. Beating the market is difficult and expensive. The NSE, the SP 500, or the Dow Jones. With this method, savings come first. These types of mutual funds are intend for savers.

Invest in Hybrid Combination Funds

Hybrid funds, which are similar to balanced funds, offer the best mix of bonds and shares. They fill the equity and loan funding gaps. The ratio may or may not change. In a nutshell, it combines the greatest qualities of two mutual funds. It could invest 60% in shares and 40% in bonds, or vice versa. Investors who prefer greater but more consistent returns over lower but riskier returns can consider hybrid funds.

The Balanced Funds

Balanced funds include all of these assets. The goal is strict risk control. It is also known as an asset allocation fund. These types of mutual funds help investors attain two goals.

Some funds provide consistent access to a diverse range of assets. Other funds allocate a varying percentage of their assets. Markets and the lifestyles of investors change. The funds are free to invest in any asset. So that the portfolio manager can keep up.

Depending on the Investment Goals

Gain in Capital Funds

Growth funds often make large investments in equities and fast-growing businesses. They are appropriate for investors (mostly Millennials) with extra funds to invest in hazardous but potentially successful projects.

A Liquid Funds

A debt fund, like an income fund, invests in debt securities and the money market for up to 91 days. You have the option of investing up to Rs. 10 lakh. In addition, the method used to calculate Net Asset Value differs between liquid and debt funds. Every day, including Sundays, the NAV for liquid funds is calculated. Only business days are taken into account for other monies.

Money / Income Funds

Income funds invest in a variety of bonds, certificates of deposit, and other assets. Professional fund managers monitor rate changes without jeopardising the portfolio’s security. That is why, traditionally, income funds have outperformed deposits. They are appropriate for those who dislike risk and have a time horizon of two to three years.

Active Growth Investment Trusts

The Aggressive Growth Fund is a higher-risk investment with higher potential profits. The beta of the fund, or how it moves compared to the market, is one issue to examine. In the market, funds are highly volatile. If the market beta is 1, the beta of a fund will be 1.10 or higher.

Tax Saving Schemes

Equity-Linked Savings Schemes (ELSS) are becoming increasingly popular among all investors. They not only save you money and lower your taxes, but they also have the shortest lock-in period at three years. They are said to yield tax-free returns of 14 to 16 percent by investing in stocks (and associated products). These types of mutual funds are appropriate for employees who want to save for retirement.

FMP Mutual Funds

Many investors wait until the end of the fiscal year to invest in order to take advantage of triple indexation. Fixed Maturity Plans (FMP) are an excellent choice for anyone concerned about the direction of the debt market and the risks that come with it. A FMP is a closed-ended plan with a set end date ranging from one month to five years (like FDs). The management of the fund guarantees that the funds are infuse for the same time period so that interest can be combine when the FMP matures.

Capital Account Protection Funds

Capital Protection Funds seek to protect the principal, even if they provide lower returns (12 percent at best). The fund managers put some money into Treasuries or CDs and the rest into stocks. Even if the risk of loss is minor, it is advisable that you invest your money for three years (in a closed-end fund).

Pension Fund

A pension fund can cover most unexpected scenarios, such as a medical emergency or a child’s wedding. This will protect your retirement income as well as the income of your family. Savings, no matter how enormous, will run out someday. EPF is one example, but banks, insurance companies, and other industries also have attractive programmes.

Depends on Risk Evaluation

Investing with Extremely Little Risk Funds

Because liquid and ultra-short-term funds (months to years) are low risk, their returns are low (6 percent at best). Meet short-term financial objectives while keeping cash safe.

Investing with Low Risk Funds

Investors are scared of risky assets in case the rupee falls in value or a national catastrophe occurs. Fund managers in these situations recommend liquid, ultra-short-term, or arbitrage funds. Returns could range from 6% to 8%, but investors can profit when prices rise.

Investing in Medium Risk Funds

Because the fund management divides the money between debt and equity funds, the risk is moderate. The NAV is not highly volatile, with average returns ranging from 9% to 12%.

Investing in High Risk Funds

Individuals with little expertise who want to make a lot of money from interest and dividends can invest in high-risk mutual funds. To keep up with market developments, performance assessments are essential. Expect 15% returns, but most high-risk funds can give up to 20%.

Depends on the Structure

Other criteria may aid in mutual fund classification (like risk profile, asset class, etc.). Therefore, the ability to acquire and sell individual mutual fund units is the key structural difference between open-ended, closed-ended, and interval funds.

Closed-Ended Funds

A fixed amount of money is invested in each unit of a closed-ended fund. As a result, the fund company cannot sell more units than the limit. During the New Fund Offer (NFO) period, several funds have a deadline for purchasing units. NFOs mature over time, and fund managers accept funds of any size. According to SEBI, investors can exit the programmes by repurchasing funds or selling them on stock exchanges.

Open-Ended Funds

Open-ended funds have no time limit or maximum number of units that can be sold. These types of mutual funds allow investors to trade whenever they want and exit whenever they want (Net Asset Value). The only reason the unit capital fluctuates is due to people coming and going. An open-ended fund may decide to stop accepting new investors (or cannot manage significant funds).

Interval Funds

Interval funds have both open-ended and closed-ended components. The fund house determines when these types of mutual funds can be purchase or available for trade. They are otherwise closed. You will be unable to trade for at least two years. These funds are appropriate for investors who want to save a lump sum for a three to twelve month goal.

Investing in Specialized Mutual Funds

Index Mutual Funds

Investors who don’t want to do anything can benefit from index funds. It is not managed by a fund manager. An index fund identifies stocks and their market index weights, then invests in stocks of similar size. They can’t outperform the market (which is why they’re not successful in India), so they mimic it.

Sector Mutual Funds

Their investments are restricted to one industry. Because these types of mutual funds exclusively invest in a few companies in a few areas, the risk is high. Investors should keep an eye on industry trends. Sector funds, on the other hand, have substantial returns. Some industries, such as banking, information technology, and pharmaceuticals, have grown swiftly and steadily in recent years.

Emerging Market Funds

Investing in emerging economies is risky, and it has backfired in the past. Moreover, India’s economy is robust and growing, and its stock market is profitable. They may vary, just like any other market. Longer term, emerging economies are expected to drive the majority of global growth in the coming decades.

Funds of Funds

A multi-manager mutual fund is designed to help investors make the most of their mutual fund portfolio by investing in multiple funds. Instead, investing in a mutual fund that invests in other funds offers diversification at a lower cost.

Global Mutual Funds

Global funds and international funds are not synonymous. A global fund mostly invests in overseas markets, but it can also participate in home markets. The International Funds do the majority of their business in other countries. Global funds are risky due to varying legislation, market conditions, and currency fluctuations. They have, however, historically delivered good long-term returns.

Foreign Funds

Foreign investors can benefit from mutual funds even when the Indian stock markets are performing well. Hybrid (60 percent domestic stocks, 40 percent international funds) and theme-based (local funds acquire foreign stocks) investment strategies are available (e.g., gold mining).

Property Investment Trusts

Despite the fact that India’s real estate business is thriving, many investors remain leery of taking risks. Investing in established real estate firms or trusts rather than projects can be a suitable choice because the investor is only involved in a limited way. It reduces the risks and legal concerns involved with property ownership while also providing you with cash.

Commodity-Focused Mutual Funds

These types of mutual funds are appropriate for risk takers looking to diversify their investments. Commodity-focused stock funds enable a diverse range of trades. However, returns can be volatile and contingent on the success of the stock or commodity. Mutual funds in India can only invest in gold. The remainder purchase fund units or shares from commodity corporations.

Inverse Funds

The returns of an inverse index fund move in the opposite direction of the returns of a regular index fund. It is essentially selling your shares and buying it again at a lower price (to hold until the price goes up again).

Market-Beating Mutual Funds

Market-neutral funds protect investors from market fluctuations while still giving strong returns (like a hedge fund). These types of mutual funds provide fantastic returns and enable even small investors to outperform the market without exceeding their portfolio limits.

Gift Funds

Suggestion: Invest in a mutual fund or a structured investment plan (SIP) to assist friends and family in making financial plans for the future. Give the gift of a start-up investment to a loved one.

Asset Allocation Funds

The combination of debt, equity, and gold in this fund makes it extremely versatile. The equity-to-debt ratio of asset allocation funds are adjustable depending on a formula or the fund manager’s market judgement. It’s similar to hybrid funds, however the management must be very knowledgeable in bond and equity selection.

Exchange-traded Funds

It is a stock exchange-traded index fund. ETFs have offered investors access to foreign stock markets and specialised firms. ETFs, like mutual funds, can be traded at different prices during the day.


Investors can choose managers with a variety of management styles and objectives. Although, a fund manager may specialist in value investment, growth investing, established or emerging markets, income investing, or macroeconomic investing. A management can track different types of mutual funds in a variety of ways. Explore the implications of types of investment funds subject by reading this report.

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