There are many Types of Mutual Funds in India but first we need to understand what is mutual fund. Mutual funds list their shares in the same manner as the shares of companies listed on the stock exchanges. Their shares can also be bought and sold like shares of other companies. Like the shares of other companies, the prices of the shares of these mutual funds fluctuate and the net asset value of their shares are also published in various financial information related newspapers.
But one fundamental difference between a company and a mutual fund is that mutual funds are limited to investing only. They do not produce or trade any other commodity, whereas companies are established with the objective of earning profit by investing in shares made by the public in the production or trade of any commodity.
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16 Different Types of Mutual Funds Available in Market
Various types of schemes have been launched by Indian Mutual Funds. You can invest in the scheme of your choice by choosing the best option as per your convenience.
Indian Mutual Funds can be classified as follows.
Open-ended Mutual Fund
There is no fixed tenure of this category of mutual funds. These funds remain open for several years until a decision is taken to discontinue the scheme of the fund. All mutual funds in India run open ended schemes. An investor can invest in this scheme whenever he wants. Initially, when the scheme is launched, its initial period is declared.
If an investor buys units during this period, then he gets the units only at the face value. But if the scheme gets listed on the stock exchange, the investor has to buy the units at the market rate. That is why the market price of the units of this scheme is declared daily so that investors can decide whether to sell their units or buy new units.
Note: The fund house is responsible for buying and selling units from the investor.
Close-ended Mutual Fund
The tenure of this category of mutual funds is pre-determined, which is announced at the time of launch of the scheme. As long as the initial period of the scheme remains open, one can buy units at the face value. One cannot invest directly in this scheme after the initial period is over. Investors who wish to invest for a long time are included in this scheme.
Since the investment amount comes to the fund managers for a long time. Hence, they invest without hesitation in well-earning securities and thus the investors get the benefit of substantial capital appreciation. Although the investment amount is blocked for a very long time in this scheme, SEBI has given this facility to the investors that if they want, they can withdraw their investment in the intervening period also but for this they have to pay the withdrawal fee.
The market value of units of this category of schemes is declared on a weekly basis. The lock-in-periods of these schemes are generally from 03 to 05 years.
These are also called equity funds. This category includes those mutual funds which hold maximum number of growth stocks in their portfolio i.e. shares of bluechips companies. These stocks give the benefit of high capital growth over a long period of time. Since these investments are directly linked to the stock market. Hence, the shares are completely affected by the fluctuations of the market. This investment carries the highest risk. These funds are preferred by investors who are risk-averse.
Mutual funds are included in this category which invest money in such securities from which investors can get regular income. Since these funds are less risky. Hence, the earning is also less as compared to the growth fund. These funds are generally invested in government securities or bonds. People who want to take less risk generally invest in these mutual funds.
Mutual funds of this category balance their investments in such a way that some part of the investment continues to increase capital and some part earns regular income. So the risk is reduced. These funds invest up to 60% of their investments in equity shares and the remaining 40% in government securities and bonds.
So overall these mutual funds are liked by a large section of investors because everyone desires to get some income and also increase some capital.
Money Market Fund
Mutual funds falling in this category invest their money in those instruments or securities from which regular and predetermined income is received. These funds work to benefit those investors who invest their money for a short period of time and want regular income. The degree of risk in these funds is very less. These include treasury bills, certificates of deposit, commercial papers, etc.
Fund managers of this category do not make any separate strategy for investment, but invest only in the stocks of 30 leading companies included in the index i.e. BSE Sensex and 50 companies included in Nifty so that their investment moves along with the market.
These investments are influenced by the activities of the stock market. Since only 80 shares of companies are available for investment in this fund. Hence some investors stay away from calling this investment narrow. So there is risk involved.
The funds of these mutual funds are also invested in equity shares through the stock market, but the investment policy of the fund manager is that they invest in the shares of a particular sector. Like power sector, metal sector, real estate sector, etc. Such sectors are selected by the fund managers which have high potential for growth. The advantage of diversification is also available in this investment.
It is also known by the names of Specialty Fund, Thematic Fund, etc. Since the area of investment in these funds becomes limited, hence investors invest less in these funds. Anyway, these funds are considered to be high risk, high profit category funds.
These funds are made for those investors who want to invest their savings money for a few months in such a fund where it will get more interest or income than the bank and also maintain full liquidity of investment. The amount of these funds is invested in debt instruments like call money, treasury bills, gilt securities, etc.
Investors in this category invest their money for a maximum period of 3 months. The business class likes these funds. Because they put their extra savings in reserve in this way.
Short Term Fund
Short term funds are a better option for investors who want to invest their money for a time period between 3 months to 1 year. Fund managers make their investments in debt instruments according to the investment period of the investors, in which treasury bills, call money and gilts or bonds are high. The risk involved in these funds is negligible.
Large Cap Equity Fund
About 80 percent of their investments by this category of mutual funds are invested in shares of large cap companies listed on the stock market. The remaining part is invested in other options. Like growth funds, these are high earning funds and are more risky. These funds belong to the category of Equity Mutual Funds.
Mid Cap Equity Fund
About 80 percent of their investments are made by this category of mutual funds in shares of mid cap companies listed on the stock market. Fund managers do not have to make any special strategy for this investment. These funds also belong to the equity mutual fund category.
Mutual Funds in this category can invest in any type of large, mid or small cap stocks as per their investment policy. Flexibility is the specialty of these funds. If the decision of this type of investment is taken by the fund managers in the middle, then they are called Flexi funds but at the time of launching this scheme, it is told that how much amount of mutual fund is in large cap, how much in mid cap or how much small. It will be invested in cap, hence it is known as multi cap fund.
Tax Benefits Fund
In this category, those mutual funds are included, on whose purchase the investor gets exemption from income tax. These types of funds usually launch their schemes sometime before the end of the financial year.
These are also called Equity Linked Savings Schemes. With these schemes, investors get all the benefits related to the stock market i.e. income, growth, etc., along with exemption from income tax.
Funds of Fund
This category includes those mutual funds that invest in the portfolio of other funds instead of investing directly in the stock market. Investors do not look at these types of funds very well.
It is clear from the above that there are many different types of mutual funds available as better options for your convenience. According to your interest, investment amount, risk appetite, you can choose the mutual fund of your choice for investment.
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