Types of Mutual Funds.

Mutual funds offer good investment opportunities to investors. Investors like us pool money to form a mutual fund. An Asset Management Company (AMC) manages & invests investor’s money into different assets like stocks, bonds, etc.?

Mutual fund schemes are broadly classified as open-ended funds or close-ended funds.

An?Open-ended Fund?means a scheme that is available for purchase and sale continuously. Investors can buy or sell in such schemes as per the scheme’s Net Asset Value(NAV) which is declared daily.?

A Close-ended Fund has fixed maturity periods. Such funds are open for subscription for a fixed period. This means new investors can not enter nor an existing investor can exit till the scheme maturity. However, SEBI regulations say that at least one of the two exit routes provided to the investor means either a selling facility or through listing on stock exchanges.?

9 common types of mutual funds are:?

Equity Funds

Equity funds aim to provide growth over the longer term. It invests a major part in the?equity market. Usually, it is a diversified portfolio of growth-oriented stocks. There are various subcategories to Equity funds like Large Cap funds, Small Cap funds, Mid and Small-cap funds, etc.

Equity funds are suitable for investors who have a high-risk appetite and investors with a long-term investment horizon. Equity funds experience a lot of fluctuations in the short run.?

Debt Funds

Debt funds invest in fixed income-generating securities that pay a fixed rate of return like government bonds, Debentures, etc. Such funds are less risky as compared to equity funds.

Debt funds are suitable for investors who do not want to take risks of market fluctuations. Debt funds strive to provide regular income, the funds will grow with little to no risk.?

Liquid funds

Liquid funds as the name suggest providing easy liquidity and moderate income. Such funds invest in treasury bills, certificates of deposit, commercial paper, etc.?

Liquid funds are suitable for investors who want to invest their money for a short period of time.?

Balanced funds

Balanced funds invest both in equities and debt in a proportion defined in the scheme objective. NAVs of such funds are likely to be less volatile as compared to equity funds.

Balanced funds are suitable for conservative investors who want to earn little more than debt funds but don’t want the entire risk associated with equity funds.?

Sector funds

Sector funds invest in specific sectors or industries as per the scheme document. For Example, the Banking and Financial Services fund invests in stocks of banking and financial sector companies as specified in the scheme objective. In the same way, there are many sectors like Pharma, IT, Gold, FMCG, etc for which sector-specific schemes are available in Mutual funds. Such funds are riskier as it invests in a particular sector.?

Sector funds are suitable for investors who are very confident in a particular sector and want to take high risks.

Index funds

An index fund invests in stocks that are in the same proportion as per index. Index funds replicate the return of the index.

Index funds are suitable for passive investors.

Exchange-Traded Funds (ETF)

Exchange-traded funds are launched by mutual funds that are listed and traded on the stock exchange. It is a basket of securities that trade on an exchange. It contains all types of investments including stocks, bonds, commodities, international holdings, etc. There are exchange-traded index funds, Gold ETF, Bond ETF, etc.

For Example, If a Woman wants to invest in Gold, she can have an investment in Gold ETF rather than having physical gold as ETF comes in the dematerialized form, which is safer than physical gold.?

Fund of Funds

A fund of fund schemes primarily invests in other schemes of the same mutual fund or other mutual funds. Such schemes have greater diversification and spread risks.

Fund of funds is suitable for investors who want to invest a small amount and also want low risk.?

International funds

International funds are equity funds that invest in stocks of companies listed outside of India. Such funds are riskier types of investments.

International funds are suitable for investors who want to take more risks and want to have exposure to international stocks.