The assets under management of the Indian mutual fund industry stands at a staggering Rs 23.23 Trillion. With more than 9.37 Crore folios across all types of mutual funds in India, mutual funds are slowly but surely becoming the preferred investment option for retail Investors.
But before you invest in mutual funds, you need to know about the various types of mutual funds in India, their investment objective and risk appetite.
The types of mutual fund schemes in India can be categorised based on:
- Asset class
- Risk Level
- Investment philosophy
Types of Mutual Fund Schemes in India Based on Management
1. Actively managed mutual funds
These types of mutual funds in India are actively managed by fund managers who constantly buy and sell shares as per their research and expertise. The primarily goal of an actively managed mutual fund is to generate alpha over the benchmark.
Equity mutual funds (except index funds) are mostly actively managed mutual funds. Actively managed mutual funds are suitable for long term investors.
2. Passively managed mutual funds
The main objective of passively managed mutual funds is to mirror the returns of its benchmark index. The fund manager does not take active interest in managing the portfolio of such funds.
Example of passively managed mutual funds: HDFC Index – Sensex Plan, ICICI Prudential Nifty Index Fund etc.
Types of Mutual Fund Schemes in India Based on Structure
1. Open ended mutual funds
Open ended type of mutual fund in India is where an investor can buy and sell units anytime throughout the year. There is no restriction on entry and exit. These funds offer highest liquidity as they can be redeemed as per daily NAV.
Examples of open-ended mutual funds: Axis Bluechip Fund, Mirae Asset large-cap fund, SBI Midcap fund etc.
2. Close ended mutual funds
Close ended type of mutual funds in India have a fixed maturity date and cannot be redeemed before the maturity period. They can be sold on the stock exchange, but there is very little liquidity for close ended mutual funds. ELSS funds are an example of close ended mutual funds as they carry a compulsory 3-year lock-in period.
Examples of close ended mutual funds: Aditya Birla Sun Life Emerging Leaders Fund – Series – 3, DSP 3 Years Close Ended Equity Mutual Fund – (Maturity Date 4-Jan-2021) etc.
3. Interval mutual funds
Interval mutual funds are a combination of open ended and close ended mutual funds as they allow investors to buy and sell units at predefined intervals.
Examples of interval mutual funds: UTI Fixed Interval Income Fund – Annual Interval Fund – IV, Reliance Interval Fund – Annual Interval Fund – Series – I etc.
Types of Mutual Fund Schemes in India Based on Asset Class
The 4 types of mutual fund schemes in India based on asset class are:
- Equity mutual funds
- Debt mutual funds
- Hybrid mutual funds
- Gold mutual funds
Let us understand these categories in further detail,
1. Equity mutual funds
Equity mutual funds predominantly invest in equity/stocks of companies and carry the highest risk. Historically, equity mutual funds have generated the highest returns over a long time period.
The types of equity mutual fund schemes as per market capitalisation are:
- Large-cap equity mutual funds: Invest in the top 100 companies in the stock market as per market capitalisation.
- Mid-cap equity mutual funds: Invest in 101st – 250th company in the stock market as per market capitalisation.
- Small-cap equity mutual funds: Invest in 251st company onwards as per market capitalisation.
The below table highlights the various types of equity mutual funds based on their investment style and mandate:
|Category of Equity Mutual Fund||Investment Mandate|
|Large-cap Funds||Minimum 80% of the corpus needs to be invested in shares of large-cap companies.|
|Large & Midcap Fund||Minimum 35% in large-cap and 35% in midcap company shares|
|Multi-cap Fund||Mandate to invest across large-mid-small cap companies|
|Mid-cap Fund||Minimum 65% of the corpus needs to be invested in shares of mid-cap companies.|
|Small-cap Fund||Minimum 65% of the corpus needs to be invested in shares of mid-cap companies.|
|Dividend Yield Mutual Funds||Minimum 65% of the corpus needs to be invested in shares of dividend yielding companies.|
|Focused Funds||Minimum 65% of the corpus in equity shares but not more than 30 unique stocks.|
|Sectoral & Thematic funds||80% of the corpus should be invested in sector or theme specific shares only.|
|ELSS Funds||Actively managed equity fund with a 3-year statutory lock-in period and tax benefit of upto Rs 1.5 Lakh under section 80C of the Income Tax Act, 1961.|
|Value/Contrarian||The scheme has to mandatorily follow value investing or contrarian strategy approach and maintain 65% of corpus in equity.|
|Index Funds||A type of passive equity mutual fund which mirrors the benchmark index.|
|Fund of Funds||A type of mutual fund which invests its corpus in a basket of other mutual funds. Minimum 95% of corpus should be invested in underlying funds.|
|Overseas Funds||Equity mutual funds investing in overseas companies like Apple, Google, Microsoft etc.|
2. Debt/ fixed income mutual funds
A debt mutual fund invests in debt instruments of companies and governments like debentures, bonds, treasury bills, commercial papers, etc. Debt mutual funds are considerably less risky than equity mutual funds but carry credit risk.
Types of Debt Mutual Funds in India
|Category of Debt Mutual Fund||Invest in Debt instruments with maturity period of|
|Overnight Funds||1 Day|
|Liquid Funds||Upto 91 days|
|Ultra Short Term Funds||3 months – 6 months|
|Low Duration Funds||6 months – 12 months|
|Money Market Funds||Upto 1 Year|
|Short Duration Funds||1 year – 3 years|
|Medium Duration Funds||3 years – 4 years|
|Medium to Long Duration||4 years – 7 years|
|Long Duration||7+ years|
|Dynamic Bond Fund||Invest across all durations|
|Corporate Bond Fund||Minimum 80% corpus in AAA rated papers only.|
|Credit Risk Debt Fund||Minimum 65% corpus in AAA rated papers only.|
|Banking & PSU Debt Fund||Minimum 80% corpus in public undertaking and banks|
|Gilt Funds||Minimum 80% corpus in Government securities|
|Gilt Fund with 10 year constant duration||Minimum 80% corpus in Government securities but macaulay duration should be equal to 10 years.|
|Floating Rate Funds||Minimum 65% corpus in Floating rate instruments|
3. Hybrid/balanced mutual funds
Hybrid mutual funds are a combination of equity and debt mutual funds and carry a moderate – high risk profile.
Types of Hybrid Mutual Funds in India
|Category of Hybrid Mutual Fund||Investment Mandate|
|Aggressive Hybrid Fund||Equity – 65% – 80%
Debt – 35% – 20%
|Balanced Hybrid Fund||Equity – 40% – 60%
Debt – 60% – 40%
No arbitrage is allowed.
|Conservative Hybrid Fund||Equity – 10% – 25%
Debt – 90% – 75%
|Dynamic Asset Allocation Fund||Can change equity-debt percentage dynamically|
|Arbitrage Hybrid Fund||The fund will follow an arbitrage strategy with minimum 65% in equity.|
|Equity Savings Hybrid Fund||Minimum 65% in Equity and 10% in Debt|
4. Gold mutual funds
Gold mutual funds are a type of fund of funds as they invest in gold ETFs which track the performance of physical gold, gold producing and mining companies. Gold mutual funds help investors in participating in the growth of gold without actually holding physical gold. As gold is considered to be a hedge against inflation, gold mutual funds help investors hedge their equity portfolio.
Types of Mutual Funds Based on Risk Level
Risk and Return are directly proportional in mutual funds i.e.
High Risk = High Returns.
Low Risk = Low Returns.
On the basis of risk, Mutual funds in India can be categorised as:
|Type of mutual fund as per risk||Category of fund|
|Very low risk mutual funds||Liquid and ultra short term debt funds|
|Low risk mutual funds||Low duration, money market, conservative hybrid funds|
|Medium risk mutual funds||Balanced fund, large-cap fund, corporate bond funds|
|Medium – High risk mutual funds||Multi-cap funds, aggressive hybrid funds|
|High risk mutual funds||Mid-cap, small-cap, credit risk funds|
Types of Mutual Fund Schemes in India Based on Investment Philosophy
Following are the types of mutual fund schemes in India based on investment philosophy:
|Investment Philosophy||Investment Style||Suitable For|
|Growth Funds||Invest in predominantly equity shares||High risk profile ; long-term.|
|Income Funds||Invest in predominantly debt instruments||Medium risk profile ; medium-term|
|Liquid Funds||Invest in instruments with less than 91 days maturity||Low risk profile ; short-term|
|Tax Saving Funds||Invest in predominantly equity shares||Investors who want to save tax and will not need the money for 3 years.|
|Aggressive Growth Funds||Invests in aggressive companies to generate alpha||High risk profile ; long-term|
|Capital Protection Funds||Invest in a mix of bonds, debentures and equity.||Investors who want guaranteed capital protection|
|Fixed Maturity Fund||Invest in predominantly debt instruments||Investors with low-medium risk profiles and who will not need the money till funds maturity.|
Types of Mutual Fund Schemes in India Based on Speciality
The types of mutual fund schemes in India based on special investment objective are:
- Solution oriented Funds: These funds are categorised as pension funds, retirement funds, child education funds etc and have high exit load period.
For example, in retirement funds, a 2% exit load is applicable if redeemed before the unitholder completes 60 years of age.
- International Funds: These funds invest solely in overseas companies using a direct or feeder approach.
- Global Funds: Global funds invest in both domestic and foreign markets.
- Real Estate Funds: A type of sectoral funds, these funds invest majority corpus in real estate companies instead of direct real estate projects.
- Commodity focused funds: Gold is the only commodity based mutual fund option available in India.
- Exchange Traded Funds: ETFs are a type of index funds but these are listed on the stock exchanges and you can trade them on a real time basis.
- Market neutral Funds: These funds indirectly invest in treasury bills, ETFs with a target to achieve steady growth without over exposing investors to market risks.
- Asset Allocation Funds: These funds follow a fixed or tactical asset allocation approach between equity, debt and gold asset classes.
- Inverse/Leveraged Funds: These funds have an inverse relationship with the market. When the markets go up, these funds incur loss and when the markets fall, these funds make profits. These are extremely risky funds.
While we have discussed the various types of mutual fund schemes in India, to find out which mutual fund scheme is the best for you, you need to look at various investment parameters like fund manager, fund house track record, exit load, historical performance etc.
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