Types of Mutual Funds : Investment Objective And Structure

How many types of mutual funds?

Four types of mutual funds

  • By Company size
  • By Structure
  • By Investment objective
  • By Payout

 

Types of mutual funds.
Mutual fund structure

 

Types of mutual funds by company size!

Large Cap Funds- These funds invest a large portion of their corpus in companies with large market capitalization. These funds generally offer stable and sustainable returns over a period of time and funds are classified as “less volatile, less risk, less returns” types of mutual funds.

 

Midcap Funds- These funds invest a large portion of their corpus in companies with mid-size market capitalization. Or funds generally offer medium returns over a period of time and funds are classified as “medium volatile, medium risk, medium returns” types of mutual funds.

 

Small Cap Funds- These funds invest a large of their corpus in companies with small size market capitalization. These funds generally offer more returns over a period of time and funds are classified as “more volatile, more risk, more returns” types of mutual funds.

 

 

Types of mutual funds by structure!

By structure, mutual fund can be categorized as the following types.

  1. Open ended scheme.
  2. Closed ended scheme.
  3. Interval scheme.

Let us see the details of each type of mutual funds.

  1. Open ended scheme- These don’t have a fixed maturity period. You can buy or sell the units at any time of the year as per NAV prices. the key feature of this scheme is liquidity. You can take out your money whenever you want. These schemes announce NAV on a daily basis.
  2. Close ended scheme- These come with a fixed maturity period. You can invest in these schemes only at the time of initial issue called “New Fund Offer” (NFO). You can sell the units only at a specified maturity date in addition. These schemes are listed on the stock exchange where you can buy or sell units of the fund. These schemes announce NAV on a weekly basis.
  3. Interval scheme- These combine the feature of both open ended and close ended schemes. You can buy or sell the units at pre-determined intervals at NAV price in addition. These schemes are listed on the stock exchange where you can buy or sell units of the fund.

 

 

Types of Mutual fund by investment objective!

By investment objectives, mutual funds can be categorized as the following types.

  1. Equity scheme
  2. Income or debt scheme
  3. Balanced scheme
  4. money market or liquid scheme
  5. Tax saving scheme
  6. Gilt scheme
  7. Index scheme
  8. Sector scheme
  9. Exchanged traded scheme.
  10. Fund of fund scheme

Let us see the details of each type.

  1. Equity schemes-

    These are known as “high risk”, “high return”. These schemes generally invest a majority of their funds in equities (shares) and hence. These are high risk investments. These schemes aim to provide capital appreciation over long term and hence suitable for long term investors. These schemes are not suitable for those who want regular income or who need money in a short term.

  2. Income or debt schemes- 

    These are known “less risk, less return”. These schemes invest a majority of their funds in fixed income securities like Bonds, Coporate Debentures, Government securities and money market instruments. These investments are low risk investments. These schemes aim to provide regular and steady income and hence suitable for short term investors and retired people. These schemes are not suitable for long term investors as there will not be much of capital appreciation.

  3. Balanced schemes- 

    These are known as “medium risk, medium return”. These schemes invest in both equity and fixed income instructors. These schemes aim to provide a combination of regular income and moderate capital appreciation These schemes are suitable for investors looking for moderate growth.

  4. Money market or liquid schemes- 

    These provide easy liquidity. These schemes invest in safe and short-term instruments such as treasury bills, certificate of deposit. These schemes aim to provide capital protection and moderate income. The returns from these schemes may fluctuate based on the interest rates in the market.

  5. Tax saving schemes- 

    These provide tax benefits to investors as per the income tax act. for example, equity linked savings scheme (ELSS) and Rajiv Gandhi equity savings scheme (RGESS). The aim of these schemes is to provide capital appreciation and tax benefits. These schemes come with a specific lock-in-period. These schemes invest mainly in equities and hence they are high risk-oriented schemes.

  6. Gilt schemes- 

    These invest exclusively in government securities. NAV of these schemes fluctuate due to change in interest rates.

  7. Index schemes- 

    These represent the portfolio of a particular index such as BSE index, NSE index, etc. These schemes invest in the shares that represent an index. NAVs of these schemes will rise or fall according to the index.

  8. Sector schemes- 

    These invest in shares that are a part of a specific sector. for example, technology sector schemes will invest in Infosys technologies, Wipro technologies etc. Returns from these schemes depends on the performance of the chosen sector. These schemes are high risky compared to diversified equity funds.

  9. Exchanged traded schemes- 

    These contain a basket of shares that represent the combination of index like BSE Index, NSE (Nifty) Index, etc. Investors can buy or sell the funds, any time during trading hours at the traded price. This has advantage over the index funds, that allows you to buy or sell based on end of the day NAV only.

  10. Fund of fund schemes- 

    These invest in other mutual fund schemes. This helps investors to diversify the risk through one scheme. the returns depend on the performance of the target mutual fund schemes.

 

 

Types of Mutual fund by payout!

By money payout method, mutual funds can be categorized as the following types.

  1. Growth schemes
  2. Dividend payout schemes
  3. Dividend Re-investment schemes

Let us see the details of each type.

  1. Growth schemes- As the name implies, growth option aims for capital appreciation over long term. The number of units, that you bought will remain the same till you sell them. NAV of scheme will increase or decrease depending, upon the performance of the scheme. In these schemes, you will get money only when you sell the units. This is suitable, for those who expects a growth over long term and those who is not in need of money during short term.
  2. Dividend payout schemes- Dividend are nothing but the profits made by the mutual fund scheme. This scheme pays out dividends to investors from time to time. But the amount and the frequency of dividend are not guaranteed. The numbers units will remain the same, but the NAV of the scheme comes down after the dividend are declared. This is suitable for those who expect to receive income flow on a regular basis.
  3. Dividend Re-investment scheme- This scheme declares dividend. But it is not paid to the investors. Instead, they are re-invested into the scheme. This way, you stay invested in the scheme. NAV gets re-adjusted after the dividends are declared and re-invested. Or the number of units will increase as the dividend are re-invested.

 

Conclusion

It’s important to note, that this is not an exhaustive list, and there are various other types of mutual funds available in the market. investors should carefully consider their investment goals, risk tolerance and time horizon when choosing a mutual fund. Consulting with a financial advisor or conducting thorough research, can help in making informed investment decisions.

 

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