Though the classification can be really complicated but mutual fund can be categorized in to three types based on their investment kind and risk involved.
Equity Funds Equity Funds are most popular now-a-days. It is also called as stock funds. Funds pool money from market and invest all those money in stock of various companies. This fund is managed by experienced fund managers. There is a high risk in these funds. But the interest rate is also high. And the time is also very long. If you are young and just started to earning money, EQUITY FUNDS are best option for you.
Debt Funds Debt funds are short time funds. If you don’t want to take any risk but also want to invest your money for high interest rate, Debt Fund is best for you. A debt fund is an investment pool, such as a mutual fund or exchange-traded fund, in which core holdings are fixed income investments.
Money Market FundsInvestors can easily access in the money market. It is an open ended mutual fund. It invests in short-term debt securities such as US Treasury bills and commercial paper. It is as safe as bank deposits.
Balanced or Hybrid FundsHybrid funds are kind of mutual fund which invests both in equity funds and debt funds. That’s why it is safe to invest in hybrid fund. If you are not getting proper interest from equity fund but you are still getting your fixed interest from debt funds. So your money won’t be drowning.
Sectoral FundsAs the name suggests, a sectoral fund invest in particular industry or sector of the economy. This fund is also named as ETF or Exchange Traded Fund.
Index FundsA Index fund’s portfolio constructed to track the components of a market index like- S&P 500. This fund has low expense ratio and low portfolio turnover.
Tax saving FundsIt offers tax deduction under Section 80C of Income Tax Act. Tax-saving funds invests primarily in equity market to generate wealth. So, this mutual fund offers dual benefit. Other than generating good amount of return, it helps you in saving your tax too.
Funds Of FundsA mutual fund who invests in other mutual funds are called funds of funds. In India, this fund invests in the same AMC.
Open-Ended Fund is an investment scheme which can issue and redeem shares any time. The investors can enter and exit the fund whenever they want. The open-ended fund does not set any limit on the number of units that can be issued. These funds are not traded in the open market. The fund units are purchased and sold at their NAV. The NAV changes regularly based on the market fluctuations depending on the value of the underlying assets and is evaluated at the end of each trading day. There is no fixed maturity period of this fund. The size of open-ended fund increases or decreases in size depending on the sell and repurchase of the fund units.
Closed-Ended Fund is an investment scheme which issues a fixed number of shares which are traded on the stock exchange. It is launched through NFO and is traded like a stock in the open market. The price of each share is dependent on the market and differs from the NAV of the fund. Supply and demand affects the actual price which is in premium or discount to the NAV when it is higher or lower the NAV respectively. Closed-ended fund has a fixed maturity period before which it can’t be redeemed. Generally, this fund trades at a discount to their underlying value of the asset.The size of closed-ended fund does not change as there is no sudden redemption before the maturity date.
Growth FundIn these scheme investors can invest their money on equity funds. You can invest your money if you want a high return. This is a long time investment and also has a huge risk.
Income FundUnder this scheme money is invested on fixed income instruments such as debentures, bonds etc.
Liquid FundsThis is a short time fund. In this fund you can invest in T-Bills, CP’s etc. They are considered to be low risk with moderate returns.