Different Types of Mutual Funds Schemes in India

Last updated:
Different Types of Mutual Funds Schemes in India

In the fast world of finance, mutual funds have become a popular investment option. One country where they have particularly gained momentum is India. Understanding the different types of Mutual Funds Schemes in India is important for anyone thinking about getting started in this investment option.

Defining Mutual Funds and Their Importance

Mutual funds serve as investment vehicles. They accumulate capital from numerous investors. They collectively invest in different types of securities, such as stocks, bonds, and other assets. Professional fund managers head these funds. They strive for substantial returns while managing the associated risk. Mutual funds are super important. The meaning of mutual funds is that they let small investors put their money into various well-managed portfolios without spending too much. The Securities and Exchange Board of India (SEBI) watches over them to ensure things are clear and your money is safe.

The Classification of Different Types of Mutual Funds Schemes

Based on their structure, the best mutual fund schemes in India to invest in are broadly classified into 

 In terms of asset class, types of mutual funds are

As per Investment objectives, mutual funds are categorised into,  

Each of these categories carries its unique risk and return in mutual funds. 

Understanding Open-Ended and Close-Ended Funds

  • Open-ended funds provide an investment pathway. Participants can buy or sell units at any time. This makes them highly liquid. Unlike fixed-term investment schemes, these funds do not operate within a specified time frame. 
  • Closed-ended funds have a fixed maturity period. This restricts investors from purchasing units solely during the initial launch. On the other hand, they do not allow this. These funds gain their market presence by being listed on the stock exchange for trading. 

Both fund types have different investment needs and objectives. The choice would depend on factors, such as the investor's risk appetite, investment horizon, and liquidity requirements.

Delving into Equity, Debt, and Hybrid Funds

  • Equity funds are a type of mutual fund that predominantly invests in stocks of various companies. With higher risk levels, they also have the potential for significant returns. This makes them suitable for investors with a higher risk tolerance.
  •  On the other hand, debt funds concentrate on fixed-income securities like as government bonds and corporate debt. These funds carry less risk and provide more stable returns. They are fitting for investors seeking a more conservative investment strategy. 
  • Lastly, hybrid funds offer a middle ground, incorporating both equity and debt investments. By blending these different investments, they aim to balance potential risk and return. They provide a diversified investment option in mutual funds in India.

Each of these fund types is designed to serve investors' different investment needs, preferences, and risk tolerance levels.

Growth, Income, and Liquid Funds Based on Investment Objectives

  • Growth funds' main aim is to deliver capital appreciation over the long term. They do this by investing primarily in stocks with significant growth potential.
  • Income funds focus towards producing steady income for investors. They achieve this by directing investments toward bonds and other securities. These investments are known for generating regular income. 
  • In contrast, liquid funds offer an option for short-term investments. They have high liquidity and lower risk levels. These funds channel investments into money market instruments. 

Therefore, each fund type serves different financial goals. They also cater to the distinct risk capacities of investors.

Understanding Tax-Saving or ELSS Funds

Equity Linked Saving Scheme (ELSS) funds, also known as tax-saving funds, are a part of equity mutual funds. They offer investors certain tax advantages. These funds are unique. They are linked to the provisions in section 80C of the Income Tax Act. This enables investors to claim tax deductions. ELSS funds have a distinctive feature: their mandatory lock-in period is three years. This period is shorter than that of other tax-saving investment vehicles. Yet, they come with risks like extra equity funds, as they invest in stock markets. Considering these aspects is vital before choosing to invest in ELSS funds.

Sectoral and Thematic Funds for Specific Investments

  • Sectoral funds focus their attention towards their investments in the technology, healthcare, or banking sectors. While these funds offer the possibility of high returns, they also carry increased risk due to the need for more diversification.
  • Thematic funds follow particular themes or trends. For example, emerging markets or ESG (Environmental, Social, and Governance) standards. Thematic funds are not like sectoral funds; they tend to offer a more diversified exposure by not limiting themselves to a single sector. Thematic funds are less risky than the sectoral funds. Yet, their risk level is higher than that of more diversified mutual fund categories. 

Both fund types provide unique investment opportunities. They are best suited for investors who understand the specific sector or theme and are willing to bear the associated risk.

Conclusion: 

Mutual funds in India offer various investment options. You can choose from equity funds for growth, debt funds for stability purposes, hybrid funds for a more balanced approach, and various other funds per your needs & requirements. But always remember that it's essential to have proper knowledge of different types of mutual fund schemes in India. Always align your investment choices with your financial goals and risk tolerance capacity. Always remember to take professional advice before making any investment decisions.

Share: