Types of Mutual Funds in India

Mutual funds in India come in many types, each offering different benefits—like earning returns, getting dividends, saving on taxes, or reducing risk. To find the right one for you, it’s important to understand what each type offers. This helps you build a balanced portfolio based on your age, goals, and where you are in life. 

There are different types of funds in India and knowing how they work can help you make smarter investment choices. Whether you’re looking for growth or stability, it’s good to explain the types of mutual fund options available, including what securities they invest in and when you can redeem your units. 

Here are a few listed below: 

A) Types of Mutual Funds Based on Asset Class 

• Debt Funds: These schemes invest in fixed-income instruments to give you returns through appreciation of capital and dividends or interest. They pose a lower risk than equity as they invest in bonds, government securities, and treasury bills.  

• Equity Mutual Funds: These are investments in company stocks where you earn returns based on revenue and profitability. These are riskier but also have the potential for high returns.  

• Money Market Funds: Typically, these schemes possess a maturity duration of up to one year. They constitute a short-term, low-risk investment choice that allocates funds to securities such as treasury bills, certificates of deposit, and commercial paper.  

• Hybrid Mutual Funds: This type is a mix of equity and debt classes to provide a balance of high returns and low-risk stocks. This is why such schemes are also called balance funds.  

B) Types of Mutual Funds Based on the Structure 

• Open-ended Mutual Funds: This is a scheme which has no fixed entry or exit point. You can invest in such schemes anytime and withdraw your investments without any restrictions. In this way, it offers high liquidity.  

• Close-ended Mutual Funds: Unlike the open-ended scheme, this investment has a fixed maturity period and offers a restricted number of units for purchase. Consequently, you can invest solely during the initial offering period. Such schemes may include debt and/or equity and are ideal for long-term investment.  

• Interval Mutual Funds: Merging the advantages of closed and open-ended schemes enables you to purchase and trade finite stocks within a specified timeframe. This is perfect if you seek a long-term investment choice that offers high liquidity.  

C) Types of Mutual Funds Based on the Investment Goal  

• Aggressive Growth Funds: These are equity-related instruments that give you great returns at a higher market risk, suitable for long-term investment.  

• Capital Protection Funds: This aims to protect the initial investment while offering modest returns by investing in hybrid schemes. They invest mostly in debt securities to overcome market downturns.  

• Equity Linked Savings Scheme: This is a tax-saving option that qualifies under section 80 C of the Income Tax Act. It allows you to receive tax deductions up to 1.5 lakhs when you invest for at least 3 years.  

• Fixed-Maturity Plans: If you are looking to invest in debt securities with a fixed lock-in period, this plan is ideal. It allows you to invest in the short term with lower risk. 

• Growth Funds: Focusing on capital appreciation, this option primarily invests in equity to get higher returns. It’s ideal if you have a high tolerance for risk and are looking for a long-term investment.  

• Gold Funds: Investing in gold is a preferred option by Indians as it provides a hedge against inflation and diversifies the investment portfolio. Gold funds allow you to invest in gold EFT.  

• Income Funds: This debt fund category is designed to provide significant capital growth through dividend distributions by investing in both government and corporate bonds. 

• Liquid Funds. It allocates funds in debt instruments with a maturity of as much as 90 days, providing flexibility and reliable returns. This is a great way to give yourself the potential to grow your investment within a shorter duration.  

• Pension Funds: This type of mutual fund scheme aims to provide you with a retirement corpus and comes with a minimum lock-in period of 5 years. You can also invest up to the age of retirement, during which the fund manager invests as per your risk appetite.  

D) Types of Mutual Funds Based on Market Capitalisation 

• Large Cap Mutual Funds: This type of fund invests in the top 100 companies listed on the stock market that have a market value of ₹20,000 crores or above. Investing in these poses lesser risk as compared to the two options below.  

• Mid-Cap Mutual Funds: These schemes allocate resources to firms from 101 to 250 based on market capitalization. Such companies possess a market valuation ranging from ₹5,000 to ₹20,000 crores.  

• Small Cap Mutual Funds: It is called a small-cap mutual fund investment if you decide to invest in companies ranking 251 or below in market capitalisation. These companies have a market value of under ₹5,000 crores. These offer a higher potential for returns.  

Comprehending these different categories and sub-types helps you make better choices as per your investment goal. Different types of funds in India can help you diversify your portfolio to mitigate the risk. You can find the right schemes no matter which stage of life you’re in, but it’s important to assess your needs beforehand.  

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