What is Mutual Fund?
A Mutual Fund is a trust who collects money from various investors & invest the money in different types of securities. The different types of securities include Stocks, Bonds, Gold, Money Market Instruments & others assets. The Trust or Investment Portfolio Managed by Professional Organisation is known as Asset Management Company. Asset Management Company launches schemes by stating its objectives. An investor can invest in these schemes if the objective of scheme is in line with investor’s needs. The money collected in mutual fund scheme is managed by professional called Fund Manager. If you don’t know how to invest in securities or don’t have time to analyse the companies Mutual Funds are a good option for investment.
Equity Mutual Fund
These Funds invest in Stocks/Shares & have potential to generate higher returns. The primary objective of these funds is wealth creation & capital appreciation. These Funds are suitable for investors with higher risk appetite & longer investment horizon. They are also known as Growth Funds.
Large Cap Funds are mutual funds that invest at least 80% in largecap stocks. Large cap stocks are defined as India’s top 100 companies by market capitalisation. Large cap funds invest incompanies that are well established businesses, market leaders,stable companies with strong financials & have proven track record of generating profits in long run. Large Cap Funds offer relatively lowerrisk, better stability & long-term growth potential. These Funds arebest for conservative or first-time equity investors
Mid Cap Funds are mutual funds that invest at least 65% in mid capstocks. Mid cap stocks are defined as stocks ranked between 101 to 250 by market capitalisation. Mid cap funds invest in companies thatare in growth phase & have higher potential to become next large capcompanies. Mid cap funds are volatile compared to large caps & areless risky compared to small caps. These Funds are best forinvestment horizon beyond 5 years.
Small Cap Funds are mutual funds that invest at least 65% in smallcap stocks. Small cap stocks are defined as stocks beyond 250th bymarket capitalisation. Small cap funds invest in companies that areyounger, emerging & have potential to become large companies infuture. Small cap funds have higher volatility, market risk & liquidity risk. These Funds are best for investment horizon beyond 5 years
Multicap Funds are mutual funds that invest at least 25% in large capsstocks, 25% at least in mid-caps stocks & 25% at least in small capsstocks. As it has 50% allocations to mid & small caps stocks it can bevolatile in short term but can be good option for diversification, riskbalancing & long-term wealth creation. These Funds are best forinvestment horizon for 5 years or more.
Large & Mid Cap Funds are mutual funds that invest at least 35% in large cap stocks & at least 35% in mid cap stocks. Large & Mid cap funds invest in India’s top 250 companies by market cap. Large & mid cap funds have safety of blue-chip stocks & potential for capital appreciation with growth oriented mid cap stocks. These Funds are best for investment horizon between 3-7 years.
Value Funds are mutual funds that invest in undervalued stocks. Undervalued stocks can be defined as stocks that are trading below their intrinsic or fundamental value. Value funds can offer higher returns, lower volatility & have lower downside risk. These funds are best for investment horizon of at least 5 years.
Contra Funds are mutual funds that use contrarian strategy meaning they invest in undervalued stocks or sectors that are temporarily out of favor with the market. Contra Funds aim to generate long term returns by exploiting market mispricing. Contra Funds are required to invest at least 65% in stocks. These funds are best for aggressive investors who have patience & a long term investment horizon of 5 years or more.
Flexi Cap Funds are mutual funds that invest at least 65% in stocks across market capitalisation - Large, Mid & Small Cap Stocks. Flexi Cap Funds offer flexibility to fund managers in selecting companies & have no restrictions on size or type of company they can invest. Flexi Cap Fund offers diversification, flexibility, dynamic asset allocation & help mitigate risk over long term.
Focused Funds are mutual funds that invest in maximum of 30 Stocks. A Focused Fund has concentrated portfolio which can be positive or negative. Positive is here fund managers can buy stocks in which he has strong knowledge or believe there is high growth potential & Negative is as these funds have limited stocks underperformance of few stocks can affect returns. These Funds are best for aggressive investors.
Dividend Yield Funds are mutual funds that invest at least 65% in stocks of companies with a history of paying high dividends. Dividend Yield Funds invest in stable, profitable & cash rich companies which makes them less volatile compared to others. These funds are best for conservative investors & regular income seekers.
Equity Linked Savings Scheme are mutual funds that invest in equitiesto provide tax benefits & wealth creation. These scheme offers taxdeduction of up to ₹1.5 Lakh under section 80C of income tax act,1961. ELSS Funds have lowest lock in period of 3 years among all taxsaving options & gives highest returns in tax savings category
Thematic/Sectoral Mutual Funds are mutual funds that focus onspecific sectors or themes. Imagine you believe in future of renewable energy. A thematic mutual fund focused on green energy will invest incompanies involved in solar power, wind energy & electric vehicles. A Sectoral mutual fund focused on healthcare sector might includePharma companies, hospitals & medical devices manufacturers.These funds are best if chosen sector or themes perform well & areworst if sector or themes don’t perform well.
Debt Mutual Fund
Debt Funds are mutual funds that invest in fixed income instrumentssuch as Corporate & Government Bonds, Corporate Debt Securities &Money Market instruments. Debt Mutual Funds are suitable for conservative investors looking for regular income or lower volatility. Forinvestors who are investing in fixed deposits Debt Mutual funds are better option as they are liquid than FDs, Tax efficient, don’t have fixedlock in period & allow investors to enter & exit easily without penalties on withdrawal.
Overnight Funds are mutual funds that invest in securities with one day maturity period. This means, the securities in portfolio mature every day & fund manager uses the proceeds to buy new securities for portfolio maturing the very next day. Overnight funds are considered safest of all mutual funds as the securities in these funds mature next day & are not exposed to kind of interest rate risk or default risk. These funds are suitable for businessmen or entrepreneurs who constantly need to park large sums of money for very short periods of time. It is better to invest surplus money in overnight funds instead of leaving money idle in current bank account. These funds can be used as emergency funds as they have high liquidity & safety.
Liquid Funds are mutual funds that invest in short term debt securities maturing within 91 days. Portfolio include treasury bills, commercial papers, certificates of deposit & other money market instruments. Ifyou are looking for higher return than overnight funds & can parksurplus money for over week Liquid funds may be chosen. Like overnight funds Liquid funds are also highly liquid, safe, have no lockin period, offer higher returns than overnight funds & less volatile.
Ultra Short Duration Funds are mutual funds that invest in short term debt securities with a maturity of three to six months. Portfolio include commercial papers, certificates of deposits & other money market instruments. These funds aim to provide slightly higher return thanLiquid funds while maintaining low risk. These funds are suitable for conservative investors who can park surplus money for minimum period of three months extending up to one year.
Low Duration Fund are mutual funds that invest in securities maturing within six to twelve months. Portfolio includes treasury bills, Government securities & top-rated corporate papers. These funds aim to provide stable returns with low risk & high liquidity, making them suitable for investment horizon of six to twelve months.
Money market funds are mutual funds that invest in money market instruments that mature within one year. Portfolio includes Treasury bills, commercial papers & certificates of deposit which are issued byGovernment, Financial institutions & corporations. These funds are suitable for investors with low-risk appetite, temporarily park surplus funds & seeking higher returns than a savings account. These funds have low volatility, low risk & are highly liquid.
Short Duration Fund are mutual funds that invest in fixed income securities & money market instruments with 1-3 years maturity. ShortDuration Fund are less volatile & can offer better returns than Liquid& Ultra Short Duration Funds. These funds are suitable for Investors looking for alternatives to fixed deposits.
Medium Duration Fund are mutual funds that invest in debt securities with 3-4 years maturity. Medium Duration Fund aims to provide investors with balance of income & capital appreciation while maintaining moderate risk profile. These funds are suitable for investors looking to park funds for medium term goals & have investment horizon of 3-4 years.
Medium to Long Duration Fund are mutual funds that invest in debt securities with 4-7 years maturity. These fund focuses on generating interest income for investors.
Long Duration Fund are mutual funds that invest in debt securities & money market instruments with long maturity periods greater than 7 years. Portfolio includes NCDs, Government bonds & high-quality corporate bonds with good credit rating. These funds are suitable for investors who are looking for diversification, reasonable capital appreciation & seeking higher return potential than traditional savings avenues.
Corporate Bond Fund are mutual funds that invest at least 80% of itsassets in AA+ & above rated bonds. Corporate Bond funds work bycollecting money from investors & buying a portfolio of highest ratedcorporate bonds. Corporate Bonds are issued by businesses tofinance various short-term expenditures such as working capitalrequirements & many more. These funds are gaining popularity asdebt instrument among businesses for raising necessary funds due tolow cost compared to bank loans. These funds are suitable forinvestors who have investment horizon of more than 1 year, seekingregular income, want higher returns than bank deposits, capitalappreciation & tax efficient for investors belonging to highest taxbracket.
Banking & PSU Fund are mutual funds that invest in debt instrumentsof banks, public sector undertakings, public financial institutions &municipal bonds. As these funds invest minimum of 80% of theirassets in debt securities from entities like banks, PSUs & Governmentagencies they are considered of low risk compared to other debtfunds. These funds are suitable for investors with 1 year or moreinvestment horizon.
Gilt Fund are mutual funds that invest in Government securities &bonds issued by central & state governments. Due to backing ofgovernment these funds are considered secure. These funds aresuitable for conservative & long-term investors.
Gilt Fund with 10 years Constant Duration are mutual funds that invest in government securities with 10 years maturity. These funds are suitable for investors who want to invest for long term usually for 5years or more, want to diversify debt investments with Government backed securities, expect interest rates to come down in future & tax efficient for investors in highest tax bracket.
Dynamic Bond Fund are mutual fund that invest in debt funds securities across maturities These funds allow fund managers to actively change the portfolio’s duration & instrument mix based on market conditions, such as interest rates expectations. These flexibility enables them to invest across various securities and generate returns in both rising & falling interest rate environments.These funds are suitable for investors who want to benefit from changing interest rate environments
Credit Risk Fund are mutual funds that invest in corporate bonds below highest ratings. The primary objective of these funds is to generate higher returns by taking risk of default as lower rated securities offer higher interest rates. The success of credit risk fund heavily depends on expertise of fund manager. These funds are suitable for investors who have higher risk appetite & minimum investment horizon of 2-3 years.
Hybrid Mutual Fund
Hybrid Mutual Fund are mutual funds that invest in mix of asset classes which include Equities (Stocks), Debt (Bonds), Gold or Real Estate. These funds aim to provide investors with balanced investment strategy which can reduce risk while offering higher returns compared to debt funds. Hybrid Mutual Fund are designed to offer combination of growth potential through equities & stability through bonds. Hybrid Mutual Fund are best for investors seeking diversification, balanced risk return profile, regular income generation & suitable for conservative investors.
Equity Savings Fund are mutual funds that invest in Equities,Arbitrage, Derivatives & Debt Securities. These funds are required toinvest at least 65% of their assets in equity & arbitrage & minimum10% in debt securities. Equity Savings Fund are treated as equity funds for tax purposes due to their equity & derivative allocation.
Aggressive Hybrid Fund are mutual funds that invest 65%-80% inequity & remaining in debt instruments. Equity portion aims to deliver capital appreciation while debt portion helps in reducing short term volatility. Aggressive Hybrid Fund are treated as equity funds for taxpurposes due to equity exposure at or above 65%
Conservative Hybrid Fund are mutual funds that invest 75%-90% in debt instruments & remaining 10%-25% in equity & equity related instruments. Conservative Hybrid Fund are relatively less volatile as equity investment portion is low. Conservative Hybrid Fund are treated as debt funds for tax purposes due to debt exposure.
Balanced Hybrid Fund are mutual funds that invest 40%-60% in equity& 40%-60% in debt instruments. Balanced Hybrid Fund aims to maintain a balanced portfolio by investing in stocks & bonds. IfBalanced Hybrid Fund has equity allocation of 65% or more then it will be treated as equity fund for tax purposes & if Balanced Hybrid Fundhas debt allocation of 65% or more then it will be treated as debt fund for tax purposes
Dynamic Asset Allocation or Balanced Advantage Fund are mutualfunds that invest in both equity & debt without being constrained by fixed allocation. Here Fund Managers have flexibility to adjust theallocation between equity & debt based on prevailing market conditions. These funds provide investors with lower risk compared topure equity funds. Most Dynamic Asset Allocation or BalancedAdvantage Fund have equity exposure of 65% or more hence they aretreated as equity funds for tax purposes.
Multi Asset Allocation Fund are mutual funds that invest in at least three asset classes with a minimum allocation of at least 10% in each asset class. Three asset classes include Equities, Debt & Gold. These funds asset mix typically includes equity for growth, debt for stability& gold for hedging. Multi Asset Allocation Fund are best examples of diversification across asset classes & avoids over concentration in any single market. Multi Asset Allocation Fund taxation depends on funds exposure, if equity exposure is 65% or more then it will treated as equity fund for tax purposes while non equity funds are treated as debt funds for tax purposes.
Arbitrage Fund are mutual funds that seeks to generate returns by exploiting price differences in cash market (spot market) & derivatives market (futures market). These funds are classified under equity oriented mutual funds & hence it will be treated as equity fund for tax purposes
Commodity Mutual Fund
Commodity Mutual Fund are mutual funds that invest in commodities & related assets. These include precious metals like gold & silver, energy resources such as oil & gas & agricultural products. Commodity Mutual Fund provides investors with exposure to diverse markets enabling them to hedge against inflation & diversify their portfolios. Commodity Mutual Fund primarily invest in non-equity instruments hence they are taxed according to the rules of non-equity oriented mutual funds.
Solution Oriented Mutual Fund
Solution Oriented Mutual Fund are mutual fund that are designed to help achieve specific financial goals like retirement or child’s education through long term investment strategy. Generally, these funds have mandatory lock in period of at least 5 years
Retirement Fund are mutual fund that helps you plan your lifestyle after you stop earning regular income. They come with a lock in period of 5 years or lock in till retirement age whichever is earlier.
Children Fund are mutual fund that are designed to help parents save for their children’s future goals such as education or marriage. Theycome with lock in period of 5 years or until child attains age of majority whichever is earlier
Based on Investment Objective
Growth Fund are type of mutual fund that aim for capital appreciation rather than regular income. Therefore, investors who are looking to buildwealth over long term find growth funds more attractive. These funds are suitable for investors with long term investment horizon, high risk tolerance, looking for diversification & seeking capital appreciation.
Income Fund are type of mutual fund that aims to generate regular income for investors by investing in securities that pay interest or dividends. These funds are suitable for retirees, conservative investors or anyone looking for regular income.
Based on Organisation Structure
Open Ended Fund are type of mutual fund that allows investors to buy &sell units at any time based on current Net Asset Value (NAV). Investors can enter or exit the fund as per their convenience making it ideal choice.
Close Ended Fund are type of mutual fund that have stipulated maturity period. Investors can subscribe for close ended scheme during launch period & can redeem only when lock in period of scheme is over. Oncefund subscriptions time is over there will neither inflows nor outflows coming into fund.
Interval Fund are type of mutual fund that allows investors to buy & sell units at specified intervals. These funds have combined features of open ended & close ended schemes, offered periodic liquidity while maintained long term investment structure
Based on Management Style
Active Fund is type of mutual fund that is managed by experienced & knowledgeable Fund manager with an aim to outperform specific benchmark index. Here Fund Manager makes its investment decisions after conducting in depth research, market analysis, economic conditions & most important Fund Manager participates in all buying & selling decisions. Due to role of professional Fund Manager Active Funds involves higher cost compared to passive funds. Active Fund are designed to outperform specific benchmark index driven by fund manager expertise whereas passive funds cannot outperform benchmark index they can mirror index performance.
Passive Fund are type of mutual fund that track a specific benchmark index & try to mirror its performance. Passively managed funds include index funds, exchange traded funds & fund of funds. These funds followa benchmark & aim to deliver similar returns with the benchmark, subject to expense ratio & tracking error. Passive Fund schemes have low cost compared to active fund as fund manager role is negligible
Others
Index Fund are passive mutual funds that track specific benchmark index & try to mirror its performance. Here Fund Manager do not play active role in selecting industries & stocks to build portfolio but simply invest in all the stocks that make up the index.
Exchange Traded Fund (ETF) are passive mutual funds that trade on exchanges & follow specific index. They include a mix of assets like stocks, bonds & commodities which investors can buy during market hours. ETFs offer lower expense ratios & lower brokerage compared tobuying individual stocks.
A Fund of Fund invest in others funds. A Fund of Fund is an investment strategy of holding portfolio of other investment funds rather than directly in stocks, bonds or other securities.
An International Mutual Fund is a mutual fund that invests in stocks, funds or debt instruments of companies listed outside India. International Mutual Fund gives investors an opportunity to invest in world biggest companies.
