Key Highlights
Mutual funds pool money from investors and invest in various assets. Mutual funds in India are categorised based on factors such as maturity period, principal investment, and asset allocation.
Categories based on the maturity period include open ended funds having no set maturity date, close ended funds accessible only during launch, and interval Funds allowing exchanges at specific intervals.
On the basis of principal investment are mainly divided into three categories. They are equity funds, debt funds and hybrid funds. Each of these categories is further divided into various categories based on the assets they invest in.
The different categories based on asset allocation under Hybrid Funds include balanced hybrid funds, aggressive hybrid funds, and dynamic Asset allocation funds.
There are various types of mutual funds. They enable investors to follow different investing strategies depending on their objectives and risk tolerance. They are divided into different categories based on various parameters. The following are the key types of mutual funds available in India.
Types of mutual fund schemes based on the maturity period are as follows-
Open Ended Funds: Investors in this scheme are free to purchase or sell units at any time. It also doesn't have a set maturity date. Liquidity is a crucial component. You may easily buy or sell your units at prices proportional to your net asset value (NAV). Open-end funds comprise the bulk of all mutual funds.
Close Ended Funds: Investors may only participate in this type of fund during its launch. It is known as a New Fund Offer (NFO). NFO funds have a set maturity time. There are no more investments allowed once the deal closes. Several market variables may cause the market price to differ from the scheme's Net Asset Value (NAV). These include expectations from unit holders along with the supply and demand.
You may sell your units directly to mutual funds through periodic buybacks at NAV-related prices in some closed-end schemes. As per SEBI regulations, the investor can access at least one of the two exit options.
Based on different investment principles, mutual funds are categories into the following types.
Category
Multi Cap Fund
Description
Spreads investments across companies of all sizes. They try to balance the stability and growth potential.
Minimum Equity Investment
65%
Investment Focus
Large, Mid, Small Cap
Category
Large Cap Fund
Description
Prioritises established blue-chip companies with proven track records and consistent dividends. They aim for steady returns.
Minimum Equity Investment
80%
Investment Focus
Large Cap
Category
Large & Mid Cap Fund
Description
Aims for a balanced mix of stability from large companies, and growth potential from mid-sized firms with higher growth prospects.
Minimum Equity Investment
35% Large, 35% Mid
Investment Focus
Large & Mid Cap
Category
Mid Cap Fund
Description
Focuses on mid-sized companies with significant growth potential. It has a higher risk compared to large cap funds but less than small cap funds.
Minimum Equity Investment
65%
Investment Focus
Mid Cap
Category
Small Cap Fund
Description
Targets smaller, high-growth companies with the potential for higher returns. However, it has a higher risk due to its smaller size and less established track records.
Minimum Equity Investment
65%
Investment Focus
Small Cap
Category
Dividend Yield Fund
Description
Prioritises companies with a history of consistent dividend payouts. It aims for regular income alongside potential capital appreciation.
Minimum Equity Investment
65%
Investment Focus
Dividend-paying stocks
Category
Value Funds
Description
Invests in undervalued stocks with strong fundamentals that are temporarily not performing well. It targets long-term capital appreciation through bargain hunting.
Minimum Equity Investment
65%
Investment Focus
Value investing
Category
Contra Funds
Description
Takes the opposite approach to the market. They invest in stocks that are currently unpopular.
Minimum Equity Investment
65%
Investment Focus
Contrarian investing
Category
Focused Funds
Description
Invests in a small, carefully chosen portfolio of stocks (multi, large, mid, small focus specified). They focus on specific assets that may outperform the market.
Minimum Equity Investment
65%
Investment Focus
Limited number of stocks (max. 30)
Category
Sectoral/Thematic Funds
Description
Focuses on a particular industry like technology or healthcare.
Minimum Equity Investment
80%
Investment Focus
Specific sector or theme
Category
ELSS Funds
Description
Invests primarily in equity with a 3-year lock-in period to qualify for tax benefits. It offers long-term wealth creation with tax advantages.
Minimum Equity Investment
80%
Investment Focus
Tax-saving equity
Category | Description | Minimum Equity Investment | Investment Focus |
---|---|---|---|
Multi Cap Fund | Spreads investments across companies of all sizes. They try to balance the stability and growth potential. | 65% | Large, Mid, Small Cap |
Large Cap Fund | Prioritises established blue-chip companies with proven track records and consistent dividends. They aim for steady returns. | 80% | Large Cap |
Large & Mid Cap Fund | Aims for a balanced mix of stability from large companies, and growth potential from mid-sized firms with higher growth prospects. | 35% Large, 35% Mid | Large & Mid Cap |
Mid Cap Fund | Focuses on mid-sized companies with significant growth potential. It has a higher risk compared to large cap funds but less than small cap funds. | 65% | Mid Cap |
Small Cap Fund | Targets smaller, high-growth companies with the potential for higher returns. However, it has a higher risk due to its smaller size and less established track records. | 65% | Small Cap |
Dividend Yield Fund | Prioritises companies with a history of consistent dividend payouts. It aims for regular income alongside potential capital appreciation. | 65% | Dividend-paying stocks |
Value Funds | Invests in undervalued stocks with strong fundamentals that are temporarily not performing well. It targets long-term capital appreciation through bargain hunting. | 65% | Value investing |
Contra Funds | Takes the opposite approach to the market. They invest in stocks that are currently unpopular. | 65% | Contrarian investing |
Focused Funds | Invests in a small, carefully chosen portfolio of stocks (multi, large, mid, small focus specified). They focus on specific assets that may outperform the market. | 65% | Limited number of stocks (max. 30) |
Sectoral/Thematic Funds | Focuses on a particular industry like technology or healthcare. | 80% | Specific sector or theme |
ELSS Funds | Invests primarily in equity with a 3-year lock-in period to qualify for tax benefits. It offers long-term wealth creation with tax advantages. | 80% | Tax-saving equity |
Category
Overnight Funds
Description
Invests in highly liquid assets maturing within a day.
Minimum Investment
Overnight securities
Risk Level
Very Low
Category
Liquid Funds
Description
Offers high liquidity and safety with maturity up to 91 days. They are good for short-term needs.
Minimum Investment
Debt & money market instruments
Risk Level
Very Low
Category
Ultra Short Duration Funds
Description
They have a slightly higher risk than liquid funds. They invest in assets with maturity between 3-6 months and look for moderate returns.
Minimum Investment
Debt & money market instruments
Risk Level
Low
Category
Low Duration Funds
Description
They have a longer maturity than ultra short funds (6-12 months). They usually offer higher returns with slightly higher risk.
Minimum Investment
Debt & money market instruments
Risk Level
Low
Category
Money Market Funds
Description
Focuses on highly liquid money market instruments have a maximum maturity period of one year. They are suitable for capital preservation and stable returns.
Minimum Investment
Money market instruments
Risk Level
Low
Category
Short Duration Fund
Description
Invest in instruments maturing within 1-3 years. They balance liquidity and the potential for higher returns. They have moderate risk.
Minimum Investment
Debt & money market instruments
Risk Level
Moderate
Category
Medium Duration Funds
Description
Focuses on instruments with a maturity period of 3-4 years. They aim for higher returns than shorter-term funds. They are slightly risky though.
Minimum Investment
Debt & money market instruments
Risk Level
Moderate
Category
Medium to Long Duration Fund
Description
Targets 4-7 year maturity range. They offer the potential for good returns. However, they are highly dependent on interest rates.
Minimum Investment
Debt & money market instruments
Risk Level
Moderate
Category
Long Duration Fund
Description
Invest in bonds that mature beyond 7 years. They aim for maximum long-term capital appreciation. However, they are significantly impacted by interest rate fluctuations.
Minimum Investment
Debt & money market instruments
Risk Level
High
Category
Dynamic Bond Funds
Description
Invests in assets with different maturity periods. They try to generate reasonable returns for investors .
Minimum Investment
Debt & money market instruments
Risk Level
Varies
Category
Corporate Bond Funds
Description
Primarily invests in high-quality corporate bonds for stable income and potential capital appreciation.
Minimum Investment
Corporate bonds (highest rated)
Risk Level
Moderate
Category
Credit Risk Funds
Description
Invests in lower-rated corporate bonds for potentially higher returns, with a low credit rating.
Minimum Investment
Corporate bonds (lower rated)
Risk Level
High
Category
Banking and PSU Fund
Description
Invests in debt instruments issued by banks, public sector undertakings, and public financial institutions. They offer stable income and have moderate risk.
Minimum Investment
Bank, PSU, PFI debt instruments
Risk Level
Moderate
Category
Gilt Fund
Description
Focuses on government securities (G-Secs) which are low-risk assets. Their maturity period usually varies.
Minimum Investment
Government securities
Risk Level
Low
Category
Gilt Fund with 10-year Constant Duration
Description
Targets 10-year government bonds. They offer specific duration exposure and fixed returns. However, they are subject to interest rate changes.
Minimum Investment
G-Secs with 10-year maturity
Risk Level
Moderate
Category
Floater Fund
Description
Invests in bonds with interest rates that depend on market rates. They offer protection against rising interest rates. However, returns may be limited.
Minimum Investment
Floating rate instruments
Risk Level
Low to Moderate
Category | Description | Minimum Investment | Risk Level |
---|---|---|---|
Overnight Funds | Invests in highly liquid assets maturing within a day. | Overnight securities | Very Low |
Liquid Funds | Offers high liquidity and safety with maturity up to 91 days. They are good for short-term needs. | Debt & money market instruments | Very Low |
Ultra Short Duration Funds | They have a slightly higher risk than liquid funds. They invest in assets with maturity between 3-6 months and look for moderate returns. | Debt & money market instruments | Low |
Low Duration Funds | They have a longer maturity than ultra short funds (6-12 months). They usually offer higher returns with slightly higher risk. | Debt & money market instruments | Low |
Money Market Funds | Focuses on highly liquid money market instruments have a maximum maturity period of one year. They are suitable for capital preservation and stable returns. | Money market instruments | Low |
Short Duration Fund | Invest in instruments maturing within 1-3 years. They balance liquidity and the potential for higher returns. They have moderate risk. | Debt & money market instruments | Moderate |
Medium Duration Funds | Focuses on instruments with a maturity period of 3-4 years. They aim for higher returns than shorter-term funds. They are slightly risky though. | Debt & money market instruments | Moderate |
Medium to Long Duration Fund | Targets 4-7 year maturity range. They offer the potential for good returns. However, they are highly dependent on interest rates. | Debt & money market instruments | Moderate |
Long Duration Fund | Invest in bonds that mature beyond 7 years. They aim for maximum long-term capital appreciation. However, they are significantly impacted by interest rate fluctuations. | Debt & money market instruments | High |
Dynamic Bond Funds | Invests in assets with different maturity periods. They try to generate reasonable returns for investors . | Debt & money market instruments | Varies |
Corporate Bond Funds | Primarily invests in high-quality corporate bonds for stable income and potential capital appreciation. | Corporate bonds (highest rated) | Moderate |
Credit Risk Funds | Invests in lower-rated corporate bonds for potentially higher returns, with a low credit rating. | Corporate bonds (lower rated) | High |
Banking and PSU Fund | Invests in debt instruments issued by banks, public sector undertakings, and public financial institutions. They offer stable income and have moderate risk. | Bank, PSU, PFI debt instruments | Moderate |
Gilt Fund | Focuses on government securities (G-Secs) which are low-risk assets. Their maturity period usually varies. | Government securities | Low |
Gilt Fund with 10-year Constant Duration | Targets 10-year government bonds. They offer specific duration exposure and fixed returns. However, they are subject to interest rate changes. | G-Secs with 10-year maturity | Moderate |
Floater Fund | Invests in bonds with interest rates that depend on market rates. They offer protection against rising interest rates. However, returns may be limited. | Floating rate instruments | Low to Moderate |
Category
Conservative Hybrid Funds
Description
Primarily invests in debt instruments. They have a small equity portion for potential capital appreciation.
Debt Allocation
75%-90%
Equity Allocation
10%-25%
Category
Balanced Hybrid Funds (50:50)
Description
Invests equally in equity and debt. They aim for a balance between growth and income with moderate risk.
Debt Allocation
40%-60%
Equity Allocation
40%-60%
Category
Aggressive Hybrid Funds
Description
Focuses on equity with some debt for stability. They try to generate higher returns by taking more risk.
Debt Allocation
20%-35%
Equity Allocation
65%-80%
Category
Dynamic Asset Allocation Funds
Description
Actively adjust equity and debt exposure based on market conditions. They aim for optimum returns based on market conditions.
Debt Allocation
Varies dynamically
Equity Allocation
Varies dynamically
Category
Multi-Asset Allocation Funds
Description
Invests in at least three different asset classes like equity, debt, or foreign instruments, for diversification and growth potential.
Debt Allocation
Varies
Equity Allocation
Minimum 10% each in 3+ asset classes
Category
Arbitrage Funds
Description
Utilises arbitrage strategies to use price differences between similar assets in different markets. They look for consistent but low-risk returns.
Debt Allocation
35% (implicitly)
Equity Allocation
65%
Category
Equity Savings Funds
Description
Combine equity investments for growth with a minimum allocation to debt for income and potential downside protection.
Debt Allocation
10% (minimum)
Equity Allocation
65%
Category | Description | Debt Allocation | Equity Allocation |
---|---|---|---|
Conservative Hybrid Funds | Primarily invests in debt instruments. They have a small equity portion for potential capital appreciation. | 75%-90% | 10%-25% |
Balanced Hybrid Funds (50:50) | Invests equally in equity and debt. They aim for a balance between growth and income with moderate risk. | 40%-60% | 40%-60% |
Aggressive Hybrid Funds | Focuses on equity with some debt for stability. They try to generate higher returns by taking more risk. | 20%-35% | 65%-80% |
Dynamic Asset Allocation Funds | Actively adjust equity and debt exposure based on market conditions. They aim for optimum returns based on market conditions. | Varies dynamically | Varies dynamically |
Multi-Asset Allocation Funds | Invests in at least three different asset classes like equity, debt, or foreign instruments, for diversification and growth potential. | Varies | Minimum 10% each in 3+ asset classes |
Arbitrage Funds | Utilises arbitrage strategies to use price differences between similar assets in different markets. They look for consistent but low-risk returns. | 35% (implicitly) | 65% |
Equity Savings Funds | Combine equity investments for growth with a minimum allocation to debt for income and potential downside protection. | 10% (minimum) | 65% |
Category
Retirement Fund
Description
Invests with a long-term focus on capital appreciation to build a corpus for retirement income. The lock-in period ensures consistent investment and prevents premature withdrawals.
Lock-in Period
5 years or retirement age (whichever is earlier)
Aim
Secure financial future at retirement
Category
Children's Fund
Description
Offers a long-term investment horizon tailored for specific child-related goals. The lock-in period helps build sufficient funds.
Lock-in Period
5 years or child's age of majority (whichever is earlier)
Aim
Provide for child's future education, marriage, or other needs
Category | Description | Lock-in Period | Aim |
---|---|---|---|
Retirement Fund | Invests with a long-term focus on capital appreciation to build a corpus for retirement income. The lock-in period ensures consistent investment and prevents premature withdrawals. | 5 years or retirement age (whichever is earlier) | Secure financial future at retirement |
Children's Fund | Offers a long-term investment horizon tailored for specific child-related goals. The lock-in period helps build sufficient funds. | 5 years or child's age of majority (whichever is earlier) | Provide for child's future education, marriage, or other needs |
The mutual funds offer a diverse range of investment options. They cater to various financial needs of investors. Mutual funds are mainly categorised on the basis of their maturity period and the assets they invest in. Based on the maturity period there are three types of funds. They're open-ended equity funds, debt and hybrid funds. Debt, hybrid, and equity funds are the three types of mutual funds based on asset allocation. Each of these types are again divided into various categories. The vast array of mutual funds in India provide investors flexibility and diversification. One can choose the ones that suit his risk tolerance and help in achieving the investment objectives.
The best type of mutual fund depends on your investment objectives and risk appetite. Different mutual funds have different risk-reward ratios. So, you can invest in a mutual fund that suits your long term goals.
Debt funds and bond funds are usually the safest mutual funds. They invest in debt instruments and government bonds, which have very low risk as they are backed by central governments.
Small and mid-cap funds generally provide higher returns. However, the returns on any type of mutual funds is not guaranteed. So, it is wise to invest as per your risk tolerance levels.