5 Types of Mutual Fund in India

Last Updated on May 28, 2022

Mutual funds are the investment avenue that provides the facility to mutually pool funds by the investors’ and that pool of funds is then invested in financial securities and managed by the fund managers.

Mutual funds in India have two set-ups:

  1. Open-ended schemes are open for the investors’ to purchase or sale of units of a mutual fund at any time.
  2. Closed-ended schemes have a fixed time period (3 years, 5 years), investors only purchase units from the mutual fund and can’t sell before maturity. The units of closed-ended mutual funds can be traded on stock exchanges.

There are varieties of mutual funds in India available and to simplify its diversification Securities Exchange Board of India (SEBI) introduced a classification of mutual funds. Accordingly, there are five categories defined for mutual funds in India. These categories contain further sub-class of mutual funds.

Types of Mutual Fund

Types of Mutual Fund

1. Equity Mutual Fund

Those mutual fund schemes in which major investment is done in stocks of the companies. Equity mutual funds in India can be managed actively (adjusting fund portfolio accordingly) or passively (tracks specific stock index). Their main objective is capital appreciation or income generation from the portfolio of the fund.

  • Large-Cap Fund: mutual fund scheme investing in companies’ stocks that are under the large market capitalization category. Minimum 80 percent of the total assets are invested in equity and equity-related instruments of large-cap companies. So, the main focus here is the large-cap companies listed in India. Some of the large-cap funds available in India are Baroda large-cap fund, HSBC large-cap equity fund, Indiabulls bluechip, etc.
  • Large and Mid-Cap Fund: mutual fund scheme investing in companies’ stocks that are under the large and mid-market capitalization category. A minimum of 35 percent of the total assets are invested in equities of large-capitalization and a minimum of 35 percent in medium-capitalization companies. Some of the funds available in India are the Axis growth opportunities fund, Essel large & midcap fund, Nippon India vision, etc.
  • Mid-Cap Fund: mutual fund scheme investing in companies’ stocks that are under the medium-market capitalization category. Minimum 65 percent of the total assets are invested in equities of mid-cap companies. Some of the mid-cap funds available in India are Axis midcap, BNP Paribas midcap, SBI magnum midcap, etc.
  • Small-Cap Fund: mutual fund scheme investing in companies’ stocks that are under the small market capitalization category. Minimum 65 percent of the total assets are invested in equities of small-cap companies. Some of the small-cap funds available in India are BOI AXA small-cap fund, Edelweiss small-cap fund, Principal small-cap fund, etc.
  • Multi-Cap Fund: mutual fund scheme investing over large-capitalization, medium-capitalization, and small-capitalization companies’ stock. A minimum of 65 percent of the total assets are invested in equity and the remaining in other asset classes. Some of the multi-cap funds available in India are Axis bluechip fund, DSP top 100 equity, Aditya Birla sun life frontline equity, etc.
  • Dividend Yield Fund: mutual fund scheme investing in dividend-yielding stocks means those companies that pay high dividends. Minimum 65 percent of the total assets are invested in equity stock of the companies which provide a constant and good amount of dividends. Some of the dividend yield funds available in India are Templeton India equity income, UTI dividend yield, IDBI dividend yield fund, etc.
  • Value Fund: Mutual fund scheme that follows an investment strategy that involves picking a stock that seems to be traded for less than its intrinsic or book value. A minimum of 65 percent of the total assets are invested in equity and equity-related instruments. Some of the value funds available in India are the JM value fund, L&T India value, Tata equity PE, etc.
  • Contra Fund: mutual fund scheme that follows an investment strategy in which investment is done opposite to the prevailing market trends i.e. contrarian investment strategy. Some of the contra funds available in India are Invesco India contra, Kotak India EQ contra fund, and SBI contra.
  • Focused Fund: mutual fund scheme in which a maximum of 30 stocks are allowed in the portfolio and has to mention in what category the scheme is focused on i.e. large-cap, mid-cap, small-cap, multi-cap. Some of the focused funds available in India are Axis focused 25, DSP focus fund, JM core 11, etc.
  • Sectoral/Thematic fund: mutual fund scheme that invests in a particular sector or theme like pharmaceutical, bank, agriculture. Minimum 80 percent of the total assets are invested in equity and equity-related instruments of a specific sector/theme. Some of the sectoral funds available in India are Franklin build India, DSP healthcare fund, UTI MNC, etc.
  • Equity Linked Saving Scheme (ELSS): an equity mutual fund scheme that invests majorly in equity with a statutory lock-in period of three years with tax benefits under section 80C of the Income tax act 1961. A minimum of 80 percent of the total assets are invested in equity and equity-related instruments. Some of the equity-linked saving schemes available in India are Quant tax plan, Taurus Tax Shield, LIC MF tax plan, etc.

2. Debt Mutual Fund

Those mutual fund schemes in which major investment is done in fixed income securities issued by the government and companies. These fixed-income securities include government securities, corporate bonds, treasury bills, money-market instruments, and other such debt securities.

  • Overnight Fund: debt mutual fund scheme that invests in overnight investment avenues having a maturity of 1 day. Some of the overnight funds available in India are Axis overnight fund, YES overnight fund, Mahindra Manulife overnight fund, etc.
  • Liquid Fund: open-ended debt mutual fund scheme investing in debt and money market financial instruments with a maturity period of up to 91 days. Some of the liquid funds available in India are DSP liquid, JM liquid fund, and Principal cash mgmt. etc.
  • Ultra-short Duration Fund: debt mutual fund scheme investing in debt and money-market financial instruments with a duration between 3 months and 6 months. Some of the ultra-short duration funds available in India are Essel ultra short term, Sundaram ultra short term fund, Baroda ultra-short duration fund, etc.
  • Low Duration Fund: mutual fund scheme investing in debt and money market financial instruments with a time period between 6 months and 12 months. Some of the low duration funds available in India are Axis treasury advantage, HSBC low duration fund, L&T low duration fund, etc.
  • Money Market Fund: mutual fund scheme investing in money market financial instruments having a maturity of one year. A money market is a financial market established between banks and financial institutions where short-term securities or very liquid assets are traded. Some of the money market funds available in India are Aditya Birla sun life money manager fund, ICICI prudential money market, Franklin India savings fund, etc.
  • Short Duration Fund: debt mutual fund scheme investing in debt and money-market financial instruments with a duration between one year and three years. Some of the short duration funds available in India are IDBI short term bond, SBI short term debt fund, HSBC short duration fund, etc.
  • Medium Duration Fund: mutual fund scheme investing in debt and money market financial instruments with a duration between 3 years to 4 years. Some of the medium duration funds available in India are Indiabulls income, Nippon India strategic debt fund, L&T Resurgent India bond fund, etc.
  • Medium to Long Duration Fund: mutual fund scheme investing in debt and money-market financial instruments with a duration between 4 years and 7 years. Some of the medium to long-duration funds available in India are HDFC income, Kotak bond fund, Tata income fund, etc.
  • Long Duration Fund: debt mutual fund scheme investing in debt and money-market financial instruments with a duration of more than 7 years. Some of the long-duration funds available in India are ICICI prudential long-term bond fund, Nippon India nivesh lakshya fund.
  • Dynamic Bond: debt mutual fund scheme investing in debt securities across various durations (debt securities with different maturity periods). These schemes have the potential to generate higher returns by shifting duration on the basis of the market scenario. Some of the dynamic bond funds available in India are Union dynamic bond, L&T Flexi bond, IIFL dynamic bond fund, etc.
  • Corporate Bond Fund: mutual fund scheme investing in AA+ and above-rated corporate bonds. These ratings show the creditworthiness of the companies issuing the bonds and are provided by the credit rating companies. The minimum investment in corporate bonds is 80 percent of the total assets. Some of the corporate bond funds available in India are UTI corporate bond fund, L&T triple ace bond, Edelweiss corporate bond fund, etc.
  • Credit Risk Fund: mutual fund scheme investing in below highest-rated corporate bonds only in AA rated. Though the risk of default increases with low ratings. The minimum investment in corporate bonds is 65 percent of total assets. Some of the credit risk funds available in India are the PGIM India credit risk fund, IDFC credit risk fund, DSP credit risk fund, etc.
  • Banking and PSU Fund: mutual fund scheme investing in debt instruments of banks, public sector undertakings, public financial institutions, and municipal bonds. The minimum investment in such instruments is 80 percent of the total assets. Some of the banking and public sector undertaking funds available in India are SBI banking and PSU fund, Kotak banking and PSU debt, Axix banking & PSU debt fund, etc.
  • Gilt Fund: debt mutual fund scheme investing in government securities across maturity. The minimum investment in government securities is 80 percent of the total assets. Some of the gilt funds available in India are Canara Robeco gilt fund, HDFC gilt fund, LIC MF GSF, etc.
  • Gilt Fund with 10-year constant duration: mutual fund scheme investing in government securities having a constant maturity of 10 years. The minimum investment in government securities is 80 percent of the total assets such that the duration of the portfolio is equal to 10 years. Some of the funds available in India are the DSP 10Y G-sec fund, ICICI prudential constant maturity gilt fund, etc.
  • Floater Fund: open-ended debt mutual fund scheme investing in floating-rate securities. The minimum investment in floating rate securities is 65 percent of the total assets. Some of the floater funds available in India are UTI floater fund, Kotak floating rate fund, HDFC floating rate debt fund, etc.
  • Fixed Maturity Plan (FMP): close-ended debt mutual fund scheme and is ideal for the investor whose investment horizon is in-sync with the maturity of the scheme and the investor is looking for a more predictable return than any conventional debt scheme. Investment in FMPs cannot be redeemed before the maturity of the scheme, except through trading on stock exchanges. Some of the fixed maturity plan schemes available in India are IDFC yearly interval-series II, Nippon India annual interval series I, UTI M interval fund Sr I ret, etc.

3. Hybrid Mutual Fund

Those mutual fund schemes invest in equity-related securities, debt securities, and money-market financial instruments. The scheme’s primary objective is to generate long-term capital appreciation and also to generate regular income.

  • Conservative Hybrid Fund: mutual fund scheme investing mostly in debt securities. Generally between 75 percent and 90 percent of the total assets and the remaining is invested in equity and equity-related securities. Some of the conservative hybrid funds available in India are BOI AXA conservative hybrid fund, Sundaram debt-oriented hybrid fund, Kotak debt hybrid fund, etc.
  • Balanced Hybrid Fund: mutual fund scheme investing in equity and debt securities. The investment in equity and equity-related securities should be between 40 percent and 60 percent of the total assets while investment in debt securities should be between 40 percent and 60 percent.
  • Aggressive Hybrid Fund: mutual fund scheme investing mostly in equity and equity-related securities. Investment in debt securities should be between 20 percent and 35 percent of the total assets and investment in equity and equity-related securities should be between 65 percent and 80 percent. So, the major part consists of equity. Some of the aggressive hybrid funds available in India are Aditya Birla sun life equity hybrid 95 funds, DSP equity, and bond fund, Quant absolute fund, etc.
  • Dynamic Asset Allocation or Balanced Advantage Fund: hybrid mutual fund scheme investing in equity and equity-related instruments and debt instruments and is managed dynamically. Some of the dynamic funds available in India are Tata balanced advantage fund, Shriram balanced advantage fund, Motilal Oswal dynamic fund, etc.
  • Multi-Asset Allocation Fund: hybrid mutual fund scheme invests in multiple asset classes with a minimum allocation of at least 10 percent for each asset class. Some of the multi-asset allocation funds available in India are Essel 3 in 1 fund, Axis triple advantage, HDFC multi-asset fund, etc.
  • Arbitrage Fund: hybrid mutual fund scheme investing in arbitrage opportunities. The minimum in equity and equity-related securities is 65 percent of the total assets. Some of the arbitrage funds available in India are the UTI arbitrage fund, BNP Paribas arbitrage fund, Indiabulls arbitrage fund, etc.
  • Equity Savings scheme: mutual fund scheme investing in equity, arbitrage, and debt securities. The minimum investment in equity and equity-related securities is 65 percent of the total assets and debt securities are 10 percent of the total assets. Some of the equity savings schemes available in India are Mahindra Manulife equity savings dhan sanchay yojana, Mirae asset equity savings fund, Axis equity saver fund, etc.

4. Solution Based Mutual Fund

  • Children’s Fund: open-ended mutual fund scheme crafted to provide finance when the children attain the majority age (18 years in India). The fund generally has a lock-in period of five years.
  • Retirement Fund: open-ended mutual fund scheme crafted to provide finance at retirement. Investment is made in low-risk financial avenues.

5. Other Fund

  • Exchange-Traded Funds (ETFs): it is a basket of security that is traded on the stock exchanges. It has characteristics of both shares and mutual funds. ETFs are bought and sold, so the prices fluctuate all day. It also has underlying assets that track/replicate a specific index like BSE Sensex. ETF contains all types of investment securities including stocks, commodities, and bonds. ETFs offer a low expense ratio and less broker commissions than buying stocks individually.
  • Real Estate Investment Trusts (REIT): It is an investment avenue that allows individuals to invest in large-scale income-producing real estate. A REIT is a trust registered with the Securities Exchange Board of India (SEBI). It allows investors to invest in large-scale properties through the purchase of stock. In the same way, shareholders benefit by owning stocks in a company, the stockholders of REIT earn a share in the income produced through real estate investments without actually buying the properties.
  • Infrastructure Investment Trusts (INVITs): It is aimed to provide a platform for financing infrastructure projects and allow investors to invest in various infrastructure projects. The holders of INVITs earn a share in the income produced through infrastructure investments made by these INVITs. Some of the INVIT in India are IRB Invit Fund, Indinfravit Trust, India Grid Trust, etc.

Conclusion

Most of the population invest in mutual funds cause they believe that it is less risky than direct equity or other riskier assets. But they must also see to the objective and nature of the pool of funds in which they put money. The purpose is to share information on mutual funds and related securities available in India.

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