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What are the different types of mutual funds?

Types Of Mutual Funds

Are you thinking of investing in mutual funds? Then it is of paramount significance to comprehend the several types of mutual funds with their respective benefits. To be precise, a mutual fund is a type of financial vehicle that comprises a pool of money collected from various investors. Interestingly, mutual funds are usually operated by professional money managers. It is important to note here that the portfolio of a mutual fund is structured and maintained in such a manner that it matches the investment objectives.

There are various types of mutual funds in India that are segregated on the basis of categories, investment objectives, and types of returns. So, let’s delve deeper into the various types of mutual funds on which you can invest nowadays. 

Funds based on a fixed income

These funds are usually deployed for investments that pay a fixed rate of return like government bonds and high yielding corporate bonds. The main aim of these types of mutual funds is to accumulate money on a regular basis in the form of interest. But it is important to note here that high-yield corporate bond funds are usually riskier when compared to the funds which comprise of investment-grade and government bonds. 

Money Market Funds

Money market funds are those types of funds that are usually associated with short-term fixed-income securities. Government bonds, bankers’ acceptances and Treasury bills are the most common types of money market funds. To be precise, they are usually a safer investment option. However, the returns on these funds are abysmally low. 

Liquid Funds

Liquid Funds belong to the debt fund category as these funds are associated with debt instruments and money market with tenures up to 90 days. But it is interesting to note here that the maximum sum that an investor can invest in this type of fund is Rs. 10 lakhs. Well, liquid funds have a key feature in their arsenal. The NAV of liquid funds is calculated for 365 days. 

Pension Funds

Pension funds are those types of mutual funds in which you can put away a portion of your income. When you retire from regular employment, a pension fund can take care of a majority of contingencies. Depending solely on your savings to get through your retirement years is not a good idea. Thus, you should always research thoroughly on the best mutual funds to invest. EPF is a good example of pension funds. 

Capital Protection Funds

In case securing the principal is what matters to you the most, capital protection funds are your best bet. But capital protection funds fetch you with relatively smaller returns of 12% on an average. Note that the fund manager invests a specific amount of money in bonds or deposits. The rest of the amount is usually invested in inequities. Though the chances of facing any loss are quite low, it would be best for you to stay invested for a time period of at least three years. 

Funds which save you tax

To be precise, the Equity Linked Saving Scheme over these years has emerged as one of the top-notch choices among investors. Tax-saving funds are your ideal options when you are on the lookout for wealth maximization and are looking for the lowest lock-in period. These types of funds invest predominantly in equity and they are also known to generate non-taxed returns in the range of 14 to 16%. It is important here to note that these funds are best-suited for salaried investors with a long-term investment horizon. 

Fixed Maturity Funds

Fixed maturity funds are those types of mutual fund schemes where an investor can take the benefit of triple indexation. In this manner, an investor can significantly decrease the tax burden. Interestingly, if you are worried too much about risks and volatile trends, the fixed maturity funds which invest in securities and financial markets, present a great opportunity. Remember that fixed maturity plans are close-ended plans and function on a fixed maturity period. In these types of funds, the fund manager ensures that the money is allocated to an investment platform with the same tenure. 

Interval Funds

Interestingly, interval funds are those types of funds that have embedded traits of both open and close-ended funds. Note that these funds are open for purchase or redemption only during certain time intervals. However, these time intervals are usually decided by the fund house. Also, note that no transactions would be performed for at least 2 years. These funds are ideal for investors who are looking forward to saving a lump sum amount for a short-term financial goal. 

Hybrid Funds

As denoted by the name, hybrid funds are an excellent blend of stocks and bonds. Thus, these types of funds are ideal for those who are on the lookout to bridge the difference between debt funds and equity funds. Moreover, the ratio of amalgamation can either be variable or fixed. In simpler words, with the help of hybrid funds, you can distribute the better of the two mutual funds. These types of funds are ideal for those who are looking forward to more risks or returns in a volatile financial market.  

Real Estate Funds

Real estate funds are those types of mutual funds that are based on specialty. For instance, if you are opting for the SBI bluechip fund, it is always a good idea to assess the risks of the financial market. However, when you invest in real estate funds, you are investing in companies that operate in the realm of real estate. Note that investment in real estate can be made at any stage. This also includes the projects which are in the planning phase. 

And if you are eager to invest in stocks and shares of companies, the equity funds are a great choice. The HDFC equity fund is an appropriate example of the equity fund. Equity funds can also include specialty funds like fast-moving consumer goods and infrastructure funds. Thus, it is always a good idea to possess sound knowledge in the realm of mutual funds.


Additional Reading:-

Types Of Mutual Funds
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1 Comment

1 Comment

  1. Shyraritika

    February 10, 2020 at 9:35 pm

    Very unique and original content really appreciate it.

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