Different Types of Mutual Funds Based on Various Categories

Mutual funds are one of the most popular forms of investments available in the market today. Mutual funds operate at the behest of asset management companies (or AMCs) that pool together investments from multiple individuals along with institutional investors that each have similar investment objectives. Fund managers are responsible for keeping an eye out for and managing these pooled investments. Mutual funds serve as the perfect tool with which individual investors get exposed to portfolios managed by experts. Read on to understand the varied forms of mutual funds that exist in the country.

Types of Mutual Funds

Diversify your investment portfolio with various Mutual Funds. There’s a diverse range of options out there, each tailored to specific investment goals, risk levels, asset classes and structures. Whether you're aiming for growth, income or specialised investments, Mutual Funds provide versatile avenues to building wealth.

Types of Mutual Funds based on asset class

An asset class refers to a category of financial assets with similar characteristics and behaviours, such as stocks, bonds, real estate or cash equivalents. Discover diverse Mutual Funds categorised by an asset class.

1. Equity Funds

Equity Funds (Stocks): Equity Funds invest in shares of companies. For example, large-cap Equity Funds target well-established, large companies, while small-cap funds focus on smaller, high-growth businesses.

2. Debt Funds

Debt Funds (Bonds): Debt Funds invest in bonds, providing a steady income. They include categories like Government Bond Funds and Corporate Bond Funds.

3. Money Market Funds

Money Market Funds (Short-term securities): Money Market Funds invest in low-risk, short-term securities, such as Treasury bills and commercial paper.

4. Hybrid Funds

Hybrid Funds (Mix of assets): Hybrid Funds blend both stocks and bonds, like balanced funds that aim for growth and stability in a single package.

Types of Mutual Funds based on Investment goals

These funds cater to specific financial objectives, offering diverse options to match the investors' unique goals.

1. Growth Funds

Growth Funds focus on capital appreciation by primarily investing in stocks of companies with high growth potential. They are suited for long-term investors seeking substantial returns.

2. Income Funds

Income Funds emphasise regular income generation by investing in bonds, fixed-income securities or dividend-yielding stocks. They suit investors looking for a steady income stream.

3. Liquid Funds

Liquid Funds prioritise liquidity and safety, investing in short-term debt instruments. They are ideal for investors seeking quick access to funds with minimal risk.

4. Tax Saving Funds 

Tax-saving funds, also known as ELSS, offer tax benefits under Section 80C. They invest primarily in equities and serve as a tax-efficient investment option.

5. Aggressive Growth Funds

Aggressive Growth Funds target substantial capital appreciation and are willing to accept higher market risks. They suit investors with a long-term horizon and a risk-taking approach.

6. Capital Protection Funds

Capital Protection Funds focus on safeguarding the principal amount while generating modest returns. They are ideal for risk-averse investors looking to protect their investments.

7. Fixed Maturity Funds

LFixed Maturity Funds have a predetermined maturity date, providing investors with a clear investment horizon. They are suited for those looking for fixed returns and minimal interest rate risk.

8. Pension Funds 

Pension Funds aim to create a corpus for retirement by investing in a mix of assets. They cater to individuals planning for a secure post-retirement financial future.

Types of Mutual Funds based on structure

Mutual Funds are categorised by structure, influencing how investors buy and sell units. These structures include open-ended, closed-ended and interval funds.

1. Open-ended Funds

Open-ended Funds allow investors to buy and sell units continuously, providing liquidity. These funds are suitable for investors looking for flexibility in terms of entry and exit points and they are commonly used for long-term wealth creation.

2. Closed-ended Funds

Closed-ended Funds have a fixed maturity period and a limited number of units. Investors can buy units only during the initial offer period and they can trade these units on stock exchanges. These funds are ideal for those seeking long-term investments with potential tax benefits.

3. Interval Funds

Interval Funds combine features of open and closed-ended funds. They allow periodic redemption requests, typically at predetermined intervals. This structure suits investors looking for a balance between liquidity and long-term investments.

Types of Mutual Funds based on risk

Different Mutual Funds come with their own level of risk, from very low to high, offering choices for diverse investor profiles.

1. Very low Risk Funds

Very low Risk Funds, like Money Market Funds, primarily invest in low-risk securities. These are ideal for conservative investors seeking capital preservation and minimal fluctuations in the investment's value.

2. Low Risk Funds

Low Risk Funds, such as Government Bond Funds, aim for income generation with a slightly higher risk than very low risk options. They are suitable for investors with a slightly higher risk tolerance.

3. Medium Risk Funds

Medium Risk Funds, like balanced funds, offer a balance between risk and reward by combining equity and debt investments. These suit investors seeking moderate growth with a manageable level of risk.

4. High Risk Funds

High Risk Funds, such as sector-specific Equity Funds, focus on capital appreciation with increased risk. These are for investors willing to accept higher volatility in pursuit of potentially higher returns.

5. Specialised Mutual Funds

Explore unique investment options to diversify and meet specific financial objectives with Specialised Mutual Funds

6. Sector Funds

Sector Funds focus on specific industries or sectors, allowing investors to target areas they believe will perform well.

7. Index Funds

Index Funds replicate a market index's performance, providing low-cost exposure to the overall market or specific segments.

8. Funds of Funds

Funds of Funds invest in other Mutual Funds, offering a diversified portfolio through a single investment.

9. Emerging Market Funds

Emerging Market Funds invest in developing economies, offering growth opportunities with a higher risk.

10. International/ Foreign Funds

International or Foreign Funds invest outside the investor's home country, diversifying risk and potentially boosting returns.

11. Global Funds

Global Funds combine domestic and foreign investments, offering a broad geographic diversification.

12. Real Estate Funds 

Real Estate Funds invest in properties, providing exposure to the Real Estate market without buying physical assets.

13. Commodity-focused Stock Funds

Commodity-focused Stock Funds invest in companies related to commodities, allowing indirect exposure to the commodity market.

14. Market Neutral Funds

Market Neutral Funds aim to generate returns while reducing market risks by balancing long and short positions.

15. Inverse/Leveraged Funds

Inverse/Leveraged Funds aim to provide returns inversely related to an index's performance or amplify returns.

16. Asset Allocation Funds

Asset Allocation Funds automatically adjust the portfolio's allocation to maintain a specific risk-return profile.

17. Gift Funds

Gift Funds are designed for charitable giving, offering tax advantages to donors while supporting causes.

18. Exchange-Traded Funds

Exchange-Traded Funds (ETFs) combine elements of Mutual Funds and Stocks, providing liquidity and a diversified exposure.

Conclusion:

Investing in mutual funds is beneficial for a wide range of reasons. For starters, your investments are handled by experts who know what they are doing which entitles you to not necessarily be entirely proficient with the markets. Most mutual funds aren’t tethered to lock-in periods which makes it easy to withdraw money should you feel the need to. ELSS mutual funds are the sole mutual funds that have a lock-in period. To add to their appeal, mutual funds are easy to invest in owing to the low cost they require which opens up the number of investors that can invest in them. One of the biggest benefits of investing in mutual funds is that it allows you to invest a small amount in a systematic investment plan on a regular basis. Should you find that you would like to move your investments to a varied fund falling under the same fund house, you have the flexibility to do so.

Allowing for diversification and serving as a form of goal-based funds, mutual funds are highly liquid entitling you as an investor to fall back on these investments in the event that you have a financial crisis. The benefits of mutual funds are vast and should not be dismissed.