Mutual Funds are the collective money of different investors who aim at saving money and making money through investments. The collected money will be invested back in various funds to earn returns. The Mutual Funds are categorized based on investment objective, structure and asset class.
Types of Mutual funds based on Asset Class:
- Equity Mutual Funds: These funds are mainly invested in the Stock market. They are also called as “Stock Funds”. Equity Funds generate higher returns when compared with other fixed-income instruments such as FDs and Debt Funds. These funds best suited to those investors who are willing to see growth along with higher returns.
These funds are further categorized into large-cap funds, mid-cap funds, small-cap funds, sectoral funds, index funds, etc.
- Debt Mutual Funds: These are the kind of mutual funds where the investments are made in debt or fixed income securities such as government securities, corporate bonds, and money market instruments. Investors will invest in these funds because they are more risk averse and want to maintain stability in their asset portfolio. And these Debt funds come up with tax deductions and are highly liquid. They are “Safe investment instrument”
There are different kinds of Debt funds such as Guilt funds, credit risk funds, floater funds, etc.
- Hybrid Mutual Funds: Hybrid funds are both the mixture of Equity and Debt funds. The investors invest in these funds to avail the benefits of investing both Equity and Debt. It enables investors to have a diversified portfolio and can have access to different asset classes.
The different kinds of Hybrid funds are balanced hybrid funds, Aggressive hybrid funds, and conservative hybrid funds.
Type of Mutual funds based on the Structure:
- Open-Ended funds: These are the investment instruments that deal with the “Units” that are purchased or redeemed throughout the year. The purchase or redemption is based on the NAV (Net Asset Value). These instruments are highly liquid.
- Close-Ended funds: These instruments deal with the “Units” which can be purchased only during the initial stages and can be redeemed only on the specific maturity date, and these are highly liquid.
Types of Mutual funds based on Investment Objective:
- Growth funds: Here, the investors will always opt of “Equity Funds” because these funds come up with higher returns along with capital appreciation. Investors invest in these to see growth in their wealth and prefer to have an investment for the long term.
- Income funds: Investments are made in “fixed-income instruments” such as debentures and bonds because they offer regular income along with capital protection.
- Liquid funds: Liquid Mutual Fund investments are made in short term instruments such as commercial papers and treasury bills because they offer moderate returns and they have a low-risk factor with high liquidity.
Types of Mutual funds based on Investment Goals:
Investments are made by the investors in Mutual funds with a specific goal set.
- Aggressive growth funds: These funds have a great chance of sudden growth and fetch higher returns. The risk involved is very high because they see high price fluctuations. It suits the investors who are willing to have an investment for more than 5 years.
- Growth funds: Investors prefer growth fund because they want to make use of growth along with the profits.most of the time it is proved that growth funds are profitable.
- Balanced funds: These funds are the fusion of income and growth. These funds provide investors with income and at the same time offers the possibility of growth. And income and growth will be moderate.
- Income funds: These funds best suits for the investors who are retired. These are the funds where the investment is made in fixed-income securities that offer moderate returns and they are less risky.
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