Different Types Of Mutual Funds

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  • 12 Nov 2023

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.

Mutual Fund Schemes Based on Maturity Period

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.

  • Interval Funds: The funds allow investors to exchange units at specific intervals. They are a combination of both open and closed ended funds. They are available for sale or redemption at NAV-based prices. They might also be traded on the stock exchanges.

Mutual Fund Schemes Based on Principal Investment

Based on different investment principles, mutual funds are categories into the following types.

  • Equity Funds: There are eleven categories in equity schemes. However, mutual fund companies can offer only ten categories. In addition, they must select between the value and contra funds. The criteria of Large Cap, Mid Cap, and Small Cap have also been provided by SEBI.
Category Description Minimum Equity Investment Investment Focus
Multi Cap FundSpreads investments across companies of all sizes. They try to balance the stability and growth potential.65%Large, Mid, Small Cap
Large Cap FundPrioritises established blue-chip companies with proven track records and consistent dividends. They aim for steady returns.80%Large Cap
Large & Mid Cap FundAims for a balanced mix of stability from large companies, and growth potential from mid-sized firms with higher growth prospects.35% Large, 35% MidLarge & Mid Cap
Mid Cap FundFocuses 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 FundTargets 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 FundPrioritises companies with a history of consistent dividend payouts. It aims for regular income alongside potential capital appreciation.65%Dividend-paying stocks
Value FundsInvests 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 FundsTakes the opposite approach to the market. They invest in stocks that are currently unpopular.65%Contrarian investing
Focused FundsInvests 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 FundsFocuses on a particular industry like technology or healthcare.80%Specific sector or theme
ELSS FundsInvests 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
  • Debt Funds: Under the debt schemes, SEBI has determined 16 categories. The table below summarises the prominent ones.
Category Description Minimum Investment Risk Level
Overnight FundsInvests in highly liquid assets maturing within a day.Overnight securitiesVery Low
Liquid FundsOffers high liquidity and safety with maturity up to 91 days. They are good for short-term needs.Debt & money market instrumentsVery Low
Ultra Short Duration FundsThey 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 instrumentsLow
Low Duration FundsThey have a longer maturity than ultra short funds (6-12 months). They usually offer higher returns with slightly higher risk.Debt & money market instrumentsLow
Money Market FundsFocuses 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 instrumentsLow
Short Duration FundInvest in instruments maturing within 1-3 years. They balance liquidity and the potential for higher returns. They have moderate risk.Debt & money market instrumentsModerate
Medium Duration FundsFocuses 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 instrumentsModerate
Medium to Long Duration FundTargets 4-7 year maturity range. They offer the potential for good returns. However, they are highly dependent on interest rates.Debt & money market instrumentsModerate
Long Duration FundInvest 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 instrumentsHigh
Dynamic Bond FundsInvests in assets with different maturity periods. They try to generate reasonable returns for investors .Debt & money market instrumentsVaries
Corporate Bond FundsPrimarily invests in high-quality corporate bonds for stable income and potential capital appreciation.Corporate bonds (highest rated)Moderate
Credit Risk FundsInvests in lower-rated corporate bonds for potentially higher returns, with a low credit rating.Corporate bonds (lower rated)High
Banking and PSU FundInvests 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 instrumentsModerate
Gilt FundFocuses on government securities (G-Secs) which are low-risk assets. Their maturity period usually varies.Government securitiesLow
Gilt Fund with 10-year Constant DurationTargets 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 maturityModerate
Floater FundInvests in bonds with interest rates that depend on market rates. They offer protection against rising interest rates. However, returns may be limited.Floating rate instrumentsLow to Moderate
  • Hybrid Funds: Mutual fund companies are limited to six categories under SEBI's Hybrid fund regulations. However, an asset management company (AMC) can only offer any 6 categories of hybrid plans. Moreover, they must select between the Balanced Hybrid Fund and the Aggressive Hybrid Fund.
Category Description Debt Allocation Equity Allocation
Conservative Hybrid FundsPrimarily 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 FundsFocuses on equity with some debt for stability. They try to generate higher returns by taking more risk.20%-35%65%-80%
Dynamic Asset Allocation FundsActively adjust equity and debt exposure based on market conditions. They aim for optimum returns based on market conditions.Varies dynamicallyVaries dynamically
Multi-Asset Allocation FundsInvests in at least three different asset classes like equity, debt, or foreign instruments, for diversification and growth potential.VariesMinimum 10% each in 3+ asset classes
Arbitrage FundsUtilises 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 FundsCombine equity investments for growth with a minimum allocation to debt for income and potential downside protection.10% (minimum)65%
  • Solution oriented funds: These funds usually focus on a specific objective of investors. There are commonly two types of funds in this category.
Category Description Lock-in Period Aim
Retirement FundInvests 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 FundOffers 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.

FAQs on Different Types of Mutual Funds

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.

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