What are different types of Mutual Funds?

Today there are more than 2500 mutual funds schemes and 44 Mutual Funds Houses or Asset Management companies (AMC) in India . Think of a situation for normal people who have never invested in such a product. Traditionally Indians used to invest in Fixed Income product i.e. Bank Fixed Deposit or Post of scheme. With lots of efforts from the Government, SEBI, AMFI, Mutual Fund, Finance Professional ,brokers and Youtubers , we can see tremendous growth of mutual funds . Asset Under Management in the case of Mutual funds increased from Rs. 1 Lakh crore in 2002 to Rs. 39.53 Lakhs crores in Aug-2022 . Growth of almost 40 times in the last 20 years so It is very important to understand different types of Mutual funds .

It is also advisable that investment should be linked with Financial Goal . Equity Mutual Fund will help to create wealth for Long term investment . If investment tenure is short term, one can invest in Debt Schemes . There are a total of five categories and 36 sub categories . We will try to understand various types of Mutual Funds .

Types of Mutual funds:

1. Equity Schemes – 10 Sub Categories
2. Debt Schemes – 16 Sub Categories
3. Hybrid Schemes – 6 Sub Categories
4. Solution Oriented Schemes – 2 Sub Categories
5. Other Schemes – 2 Sub Categories

Equity Schemes:

1. Large Cap Fund: An Open-ended Scheme investing minimum 80 percent in equity or equity related instruments of Large cap companies i.e. First 100 listed companies in terms of full market capitalisation .
2. Mid Cap Fund: An Open-ended Scheme investing minimum 65 percent in equity or equity related instruments of Mid cap companies i.e. 101st to 250th listed companies in terms of full market capitalisation .
3. Small Cap Fund: An Open-ended Scheme investing minimum 65 percent in equity or equity related instruments of Small cap companies i.e. 251 listed companies in terms of full market capitalisation .
4. Large and Mid Cap Fund:An Open-ended Scheme investing minimum 35 percent in equity or equity related instruments of Large Cap and Mid cap companies .
5. Multi Cap Fund: An Open-ended Scheme investing minimum 65 percent in equity or equity related instruments of Large Cap, Mid cap and Small Cap companies .
6. Dividend Yield Fund: An Open-ended Scheme predominantly investing minimum 65 percent in equity or equity related instruments of Dividend Yield Stock
7. Value Fund or Contra Fund:  An Open-ended Scheme investing minimum 65 percent in equity or equity related instruments by following a value investment strategy. It follows a contrarian investment strategy. Mutual Funds will be permitted to offer either Contra fund or Value fund.
8. Focused Fund: An open-ended equity scheme investing in maximum 30 stocks . The scheme needs to mention where it intends to focus i. e. multi cap, large cap, mid cap, small cap. Minimum investment in equity & equity related instruments shall be 65 percent of total assets of Mutual Fund .
9. Sectoral/Thematic: An Open-ended Scheme investing minimum 80 percent in equity or equity related instruments of particular sections like Bank, Pharma etc.
10. Equity Linked Savings Scheme: This is popularly known as ELSS . An Open-ended Scheme investing minimum 80 percent in equity or equity related instruments in accordance with Equity Linked Saving Scheme, 2005 notified by the Ministry of Finance. This scheme comes with Statutory lock in a period of 3 years .

Debt Schemes:

1. Overnight Fund: As the name suggests , it is for 1 day . Investment is in overnight securities having maturity of 1 day .
2. Liquid Fund: This is a good alternative to saving accounts. Liquid scheme whose investment is into money and debt market securities with maturity of upto 91 days only.
3. Ultra Short Duration Fund: Little higher maturity than Liquid Fund .An ultra-short term debt scheme investing in money and debt market instruments with Macaulay duration between 3 months and 6 months duration.
4. Low Duration Fund: Same like Ultra Short Duration with only difference in Tenure i.e between 6 months and 12 months.
5. Money Market Fund: This is a short term investment. Asset Management Company (AMC) invests in money market instruments having maturity upto 1 year.
6. Short Duration Fund: AMC invests in debt and money market instruments with Macaulay duration between 1 year and 3 years.
7. Medium Duration Fund: AMC Invests in debt and money market instruments with Macaulay duration of the portfolio being between 3 years and 4 years.
8. Medium to Long Duration Fund: Invests in debt and money market instruments with Macaulay duration between 4 years and 7 years.
9. Long Duration Fund: Normally equity mutual funds help to create wealth in the long term but the investor is not having a high risk profile , he/she can prefer a long duration debt fund. AMC invests in debt and money market instruments with Macaulay duration greater than 7 years.
10. Dynamic Bond: An open ended dynamic debt scheme investing across duration.It is Dynamic  as the name suggests .
11. Corporate Bond Fund: As the name suggests , investment will be in corporate bonds . Predominantly invests in AA+ and above rated corporate bonds. AA+ is rated by credit agencies based on risk profile .The minimum investment in corporate bonds shall be 80 percent of total assets (only in AA+ and above rated corporate bonds)
12. Credit Risk Fund: Within corporate Bond investment , this is an additional category fund for high quality bonds. Invests in below highest rated corporate bonds. The minimum investment in corporate bonds shall be 65% of total assets (only in AA (excludes AA+ rated corporate bonds) and below rated corporate bonds)
13. Banking and PSU Fund: Predominantly investing in debt instruments of banks, Public Sector Undertakings, Public Financial Institutions and Municipal Bonds. The minimum investment in such Instruments should be 80 percent of total assets.
14. Gilt Fund: This is considered as a most secured investment . Invests in government securities across maturity. The minimum investment in G-secs is defined to be 80 percent of total assets (across maturity).
15. Gilt Fund with 10-year constant duration: This is one more type of Gilt Fund. An open-ended debt scheme investing in government securities having a constant maturity of 10 years. Minimum investment in G-secs is 80 percent of total assets such that the Macaulay duration of the portfolio is equal to 10 years.
16. Floater Fund: Predominantly invests in floating rate instruments (including fixed rate instruments converted to floating rate exposures using swaps/derivatives). Minimum investment in floating rate instruments (including fixed rate instruments converted to floating rate exposures using swaps/derivatives) shall be 65 percent of total assets.

Open Ended Hybrid Schemes:

Hybrid Scheme means a mutual fund invests in both debt and equity instruments .

1. Conservative Hybrid Fund: This fund predominantly invests in debt securities. Investment in debt instruments shall be between 75% and 90% of total assets while investment in equity and equity instruments shall be between 10% and 25% of total assets.
2. Balanced Hybrid Fund: Fund investments in equity and equity related instruments between 40% and 60% of total assets while investment in debt shall be between 40% and 60%. Aggressive Hybrid Fund: High portion in equity considering risk profile of the Investor .Predominantly invests in equity and equity related instruments. The investment in equity and equity related instruments shall be between 65% to 80% of total assets while investment in debt instruments shall be between 20% and 35% .Mutual funds in India are permitted to offer either Aggressive Hybrid Fund or Balanced Fund.
3. Dynamic Asset Allocation or Balanced Advantage: Asset allocation is one of important steps in Investment Planning.Investment in equity/debt that is managed dynamically.
4. Multi Asset Allocation: Investing in at least three asset classes with a minimum allocation of at least 10% each in all three asset classes. Important point is that foreign securities are not treated as a separate asset class in this kind of scheme.
5. Equity Savings Fund: Invests in a combination of equity, arbitrage and debt. The minimum investment in equity and equity related instruments shall be 65% (including arbitrage) and in debt 10% of total assets.
6. Arbitrage Fund: An open-ended scheme investing in arbitrage opportunities. The minimum investment in equity and equity related instruments shall be 65 percent of total assets.

Solution Oriented Schemes :

1. Children’s Fund: TTo invest as per financial goal is one of important principles in Financial Planning. Here you will get two specific goal based funds i.e Children fund and retirement fund with lock in period. An open-ended fund for investment for children having a lock-in for at least 5 years or till the child attains age of majority (whichever is earlier). 
2. Retirement Fund: Like Children’s fund , there is a retirement fund. An open-ended retirement solution-oriented scheme having a lock-in of 5 years or till retirement age (whichever is earlier). 

Other Schemes :

1. Index Funds/Exchange Traded Fund: They are two ways to manage fund i.e. Active Investment and other passive investment strategies . Index Fund is a passive investment strategy . An open-ended scheme replicating/tracking a specific index.This minimum investment in securities of a particular index (which is being replicated/ tracked) shall be 95 percent of total assets.
2. Fund of Funds (Overseas/Domestic): An open-ended fund of fund scheme investing in an underlying fund. The minimum investment in the underlying fund shall be 95 percent of total assets.

Other Types of Mutual Funds:

1. Floating Rate Funds: Invest in Floating rate debt instruments
2. Capital Protected Scheme: This is close-ended schemes, which are structured to ensure that investors get their principal back, irrespective of what happens to the market.
3. Infrastructure Debt Funds (IDF): This fund can be registered by a Trust or Company . If it is trust, it will be regulated by SEBI . Company based IDFs are normally NBFC and it is regulated by RBI. 

New Types of Mutual Funds:

1. Smart Beta Funds: Extension of traditional Investment options such as ETF and Index Fund . It uses additional factors such as low Volatility,value and quality while selecting stocks.
2. Quants Funds : Predefined Asset Allocation rules to manage this fund
3. International REITs : Invest in Real Estate Fund abroad .

You can check top performing mutual fund online as per given link for regular investment. MF past return details are also available on Moneycontrol.com website .

Before you start investment , you have to plan for it. Do read our post How to do Investment Planning ? for better understanding .

Hope you liked this post and got understanding about types of Mutual Funds. Please give your valuable feedback in the comment section.