Different Mutual Fund Types

Based on Asset Class

Equity Funds

They invest the money raised from a variety of investors with a variety of backgrounds in various companies' shares/stocks. 

The gains and losses associated with these funds are solely determined by the stock market performance of the invested shares (price increases or decreases). 

Furthermore, equity funds have the potential to generate significant profits over time. As a result, the risk of investing in these funds is usually higher.

Bonds, equities, and Treasury bills are among the fixed-income products that debt funds typically invest in. 

They invest in Fixed Maturity Plans (FMPs), Gilt Funds, Liquid Funds, Short-Term Plans, Long-Term Bonds, and Monthly Income Plans, among other fixed-income instruments. 

Because the investments have a set interest rate and maturity date, they can be a good choice for passive investors looking for consistent income (interest and capital appreciation) with little risk.

Money Market Funds

The stock market is where investors buy and sell shares. 

Capital market or cash market is another name for money market where an investor can invest their money. 

The government manages it in collaboration with banks, financial institutions, and other businesses by issuing money market securities such as bonds, T-bills, dated securities, and certificates of deposit. 

The fund manager invests your money and pays you dividends regularly. Choosing a short-term strategy (no more than 13 months) can significantly reduce the danger of investing in such funds.

Hybrid Funds

The ratio might be either fixed or variable. In a nutshell, it combines the best features of two mutual funds by allocating 60% of assets to stocks and 40% to bonds, or vice versa. 

Hybrid funds are appropriate for investors who choose to accept higher risks in exchange for the benefit of 'debt plus returns,' rather than sticking to lower but more consistent income schemes.

Growth Funds

Growth funds typically invest a significant amount of their assets in stocks and growth sectors, making them ideal for investors (mainly Millennial) with extra cash to put in riskier (but potentially higher-returning) plans or who are enthusiastic about the scheme.

Income funds have historically earned investors higher returns than deposits, thanks to professional fund managers who keep the portfolio in sync with rate swings without jeopardizing the portfolio's creditworthiness. 

They're best for risk-averse investors with a time horizon of two to three years.

Liquid Funds

Liquid funds, like income funds, are debt funds because they invest in debt instruments and money market funds with a term of up to 91 days. 

Rs 10 lakh is the maximum amount that can be invested. The method by which liquid funds calculate their Net Asset Value distinguishes them from other debt funds. 

Tax-Saving Funds

They not only let you maximize your wealth while saving money on taxes, but they also have the shortest lock-in period of only three years. 

They are known to provide non-taxed returns in the range of 14-16 percent by investing mostly in stock (and associated products). 

These funds are best suited for salaried investors looking to invest for the long term.

The Aggressive Growth Fund, which is slightly riskier when it comes to investing, is designed to earn large monetary gains. 

Despite being vulnerable to market volatility, one might choose a fund based on its beta (a measurement of the fund's movement concerning the market). 

For instance, if the market has a beta of 1, an aggressive growth fund will have a beta of 1.10 or higher.

Capital Protection Funds

If the goal is to protect your money, Capital Protection Funds can help you achieve that goal while earning lower returns (12 percent at best). 

A portion of the money is put into bonds or CDs, while the balance is put into equities by the fund manager. 

Many investors choose to invest at the end of the fiscal year to take advantage of triple indexation and lower their tax burden. 

Fixed Maturity Plans (FMP) – which invest in bonds, securities, money market, and other assets – is a wonderful option if you're concerned about debt market trends and hazards. 

FMP operates on a predetermined maturity time, which can range from one month to five years, as a closed-ended plan (like FDs). 

The fund management ensures that the money is invested for the same amount of time into accrued interest when the FMP matures.

Pension Funds

Most scenarios (such as a medical emergency or a child's wedding) can be covered by putting a portion of your income into a chosen pension fund over a lengthy period to protect your and your family's financial future after retiring from a regular job. 

Savings (no matter how large) do not last forever, so relying completely on them to see you through your golden years is not advised. 

The structural classification – open-ended funds, closed-ended funds, and interval funds – is relatively broad, and the main distinction is the ability to buy and sell individual mutual fund units.

Open-Ended Funds

Investors can exchange funds whenever they wish and leave when they need to at the current NAV with these funds (Net Asset Value). 

As new entries and exits occur, this is the only reason why the unit capital varies. 

If an open-ended fund does not want to accept new investors, it might elect to discontinue doing so (or cannot manage significant funds).

The amount of money needed to invest in closed-ended funds is predetermined. 

That is, the fund company is not permitted to sell more units than has been agreed upon. 

A New Fund Offer (NFO) period exists for some funds, during which you must purchase units by a specified date. 

Fund managers can choose any fund size, and NFOs have a pre-determined maturity period. 

As a result, SEBI has stipulated that investors have the option of repurchasing the funds or listing them on public exchanges to exit the schemes.

Interval Funds

Interval funds are open-ended and closed-ended at the same time. 

These funds are only available for purchase or redemption at pre-determined intervals (set by the fund house) and are otherwise closed. 

Furthermore, no trades will be permitted for at least two years. 

Funds with Extremely Low Risk

Liquid funds and ultra-short-term funds (one month to one year) are known for their minimal risk, hence their returns are expected to be low as well (6 percent at best). 

Investors pick this to achieve their short-term financial goals while keeping their money safe.

Low-Risk Funds

Investors are hesitant to engage in riskier funds in the case of rupee depreciation or an unexpected national crisis. 

In such instances, fund managers propose investing in a liquid, ultra-short-term, arbitrage fund, or a combination of these funds. 

Returns may range from 6 to 8%, but investors have the option to move when valuations become more solid.

Medium-risk Funds

Because the fund manager invests a portion in debt and the remainder in equity funds, the risk element is moderate. 

The NAV is not particularly volatile, and average returns of 9-12 percent are possible.

High-Risk Funds

Because performance reviews are sensitive to market volatility, they must be conducted regularly. 

You can expect a 15% return on your investment, however most high-risk funds provide returns of up to 20%.

Specialized Mutual Funds

Sector Funds

Because these funds only invest in a few firms in specialized areas, the risk factor is higher. 

It's a good idea for investors to keep an eye on the numerous sector-related developments. 

Sector funds are also very profitable. Some industries, such as banking, IT, and pharmaceuticals, have had rapid and continuous growth in recent years and are expected to continue to do so in the future.

Index Funds

It is not managed by a fund manager. 

An index fund identifies stocks and their related market index ratios, then invests in similar equities in a similar proportion. 

Even if they are unable to outperform the market (which is why they are not well-liked in India), they play it safe by imitating the index's performance.

Funds of Funds

In brief, choosing one fund that invests in a variety of funds rather than numerous funds accomplishes diversification while also lowering costs.

Emerging market Funds

India is a dynamic and rising economy where domestic stock market investors can make substantial profits. 

They, like other markets, are subject to market swings. 

In the long run, developing economies are likely to account for the vast bulk of global growth in the next decades.

Foreign/International Funds

A hybrid technique (say, 60% domestic equities and 40% overseas funds) or a feeder approach (getting local funds to invest in foreign stocks), or a theme-based allocation can all be used by an investor (e.g., gold mining).

Global Investment Funds

While a global fund primarily invests in global markets, it may also invest in your native country. 

The International Funds only concentrate on international markets. 

Global funds, with their diverse and worldwide approach, can be extremely risky due to differing policies, market, and currency fluctuations, yet they do function as a hedge against inflation, and long-term returns have historically been good.

Real Estate Funds

The investor will be an indirect participant in a real estate fund because their money will be invested in established real estate companies/trusts rather than projects. 

When it comes to purchasing a house, a long-term investment eliminates dangers and legal problems while also providing some liquidity.

Commodity-focused Stock Funds

Commodity-focused stock funds allow you to try your hand at a variety of different transactions. 

Returns, on the other hand, are not always predictable and are reliant on the stock company's or the commodity's performance. 

In India, gold is the only commodity that mutual funds can invest indirectly. The rest buy commodity enterprises' fund units or shares.

Investing in Market Neutral Funds

These funds offer strong returns due to their higher risk-adaptability, allowing even modest investors to outperform the market without exceeding their portfolio limitations.

Leveraged/Inverse Funds

It's simply selling your shares when the stock price falls, then repurchasing them at a lower price (to hold until the price goes up again).

Funds for Asset Allocation

Asset allocation funds can govern the equity-debt distribution based on a pre-determined formula or the fund manager's judgments based on current market patterns. 

It's similar to hybrid funds, but it necessitates a high level of knowledge from the fund management in terms of bond and stock selection and allocation.

Funds for Gifts

Yes, you can give your loved ones a mutual fund or a SIP to help them safeguard their financial future.

ETFs (Exchange-Traded Funds) are a type of mutual

It is a type of index fund that may be bought and traded on exchanges. 

Exchange-traded Funds have opened up a whole new universe of investment opportunities for investors, allowing them to acquire wide exposure to stock markets around the world as well as specialized sectors. 

An ETF is a type of mutual fund that may be exchanged in real-time at a price that fluctuates throughout the day.