Mutual Funds Categories

Mutual Funds Categories

Mutual Funds are the Pool of money managed by some Fund Managers working with some asset management Company. These fund managers invest the money which is known as AUM (Assets under Management) in various instruments like Equity, Corporate & Government Bonds, Gold Etc as per the Objective of the Mutual Fund Schemes.

Though the Returns in these schemes are not guaranteed, their Past Performance witnessed impressive Returns during the last 25-30 years. It is always advised to stay invested here for Long Term. So these schemes can be used as a tool for Long Term Goal Planning. Another way to minimize risk here is by investing little amount at a frequent interval of time which is known as SIPs ( Systematic Investment Plans).

Equity Oriented Mutual Funds – The main Objective of these Schemes is to yield high returns over a period of time by investing a significant part of AUM in Equity or Equity related Instruments. These are further classified as

Equity Linked Saving Schemes – These are the schemes of Equity Oriented Mutual Funds dominating investments in Large Cap Companies. Besides having Tax Benefit under section 80 C of Income Tax Act, these provide growth opportunity better than other Instruments of Investments which qualifies for the deduction under section 80 C of Income Tax Act. These schemes have a Lock-in Period for 3 years from the date of investment. We will be discussing ELSS in details in some future Post.

Indexed Funds – These are the Funds which primarily aimed to invest in equities of the companies which are included in Index. Say Companies of Nifty 50 or Sensex 30 in India. As the Companies forming Index are well reputed and covers almost all sectors of Economy, the risk factor here is low as compared to other categories in Equity Oriented Mutual Funds.

Sector Specific Funds – These are aggressive in nature bet on certain companies of some Specific Sectors. For Example- Banking Funds, Infrastructure Funds, Pharma Funds & Power Sector Funds.

Diversified Funds – Here the investment is bet upon some growth-oriented Companies irrespective of any sector-specific but diversified, to minimize the risk factors. Generally, these funds Invest in Large to Mid Cap Funds.

Large Cap Funds – These are the funds which invest in Companies with relatively High Market Capitalization and well-known track records. Therefore we can say more reliable companies. Risk Grade is Low and Return grade is Moderate.

Mid-cap Funds – These funds invest in some of the value companies where growth can be perceived. Risk and Return Grade is Moderate.

Small-Cap Funds – Here investment is done in relatively Low Market Capitalized Companies, which the Fund Managers expect to grow many a fold times during a long period of time. Risk and Return Grade is High.

It can be said here that Small Caps and Mid Caps have the potential to turn into Large Caps of Future.

Multi-Cap Fund – They invest in all spaces irrespective of Market Capitalization of the Companies. Hence, making the investment less aggressive and across all boundaries.

Debt Oriented Mutual Funds  – There is often a myth that Mutual Funds Invest in Equities but these are the much-diversified concept. Debt Oriented Mutual Fund Schemes with the objective of yielding consistent Returns with Low Risk invests in various instruments like Corporate Bonds, Money Market Instruments and other Debt Securities according to the time frame of their maturity.

Money Market Funds – These schemes are suitable for investment for a time horizon for more than 90 days and up to one year.  These schemes invest in the Money market and other instruments as specified by Reserve Bank of India. The instruments in the basket may have a different maturity period.

Liquid or Gilt Funds – These Funds invest in the Instruments having a maturity less than 91 days. These Instruments may be Government Securities, Commercial Papers, Treasury Bills and Call Money. These schemes are suitable where an investor wants to put his money for a shorter period of time.

Fixed Maturity Plans – The Maturity of these plans is always predefined. The maturity may range between 30Days to 5 years. FMPs invest in Certificate of Deposits and Bonds which have a certain period of Lock-in and earn interest at maturity. These are Close-Ended Schemes which means one has to stay invested until the maturity of the Scheme.

Balanced or Hybrid Funds – As the name itself suggest, these schemes are a blend of Equity and Debt Oriented Instruments. The percentage limits of Equity and Debt is actually predefined in the Objectives of the Scheme. These Schemes focus on Moderate Investment Strategy, where it aims to yield better returns as compared to Debt Oriented Mutual Funds taking Risk to Moderate Level.

Gold Funds – Gold funds are the schemes which aim at yielding returns by investing in Gold ETFs and Companies relating to Mining of Gold. These Schemes became popular during the period of Global Recession 2008 where the Equity class was not performing and Gold came out with consistent Returns beating inflation.

Mutual funds are always a better avenue of Investment where an investor cannot actively manage his Portfolio because:

  • These are managed by Experts (Fund Managers in an Asset Management Company).
  • Low on Costs (Expense Ratio).
  • High Transparency and Regulatory Structures.
  • Past Performance of Schemes and Track Records of Manager being Available.
  • Low Tick Size.
  • Investment can be done in a Lump sum or Regularly.

Despite all these features, Future Performance of these Schemes cannot be Guaranteed as per Regulatory Guidelinesreek.

Be Wise & Keep Investing

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