What Types of Mutual Funds are Available?
Mutual funds have recently become very well-known as a successful investing channel. Your investment goal will determine which type of mutual fund fits your needs.
Mutual funds may also see their returns go down because of commissions, annual fees, or expense ratios.
A portfolio of stocks, bonds, or other securities makes up a mutual fund. According to the types of securities you invest in, your investment goals, and the kinds of returns you seek, mutual funds are grouped into several categories.
Types of Mutual Funds
- Equity Funds
Equity funds are a type of mutual fund that, as their name suggests, invests in the stock of various firms. These funds carry a significant investment risk due to their equity market investments. Besides, this type of mutual fund is likely to see capital growth.
While equity funds share a typical pattern, not all are equal or similar to one another. Some equity funds may invest only in one or a few specific sectors. Others may attempt to replicate an index like the Nifty 50.
- Balanced Funds
These investments are also known as “asset allocation funds.” It combines equities and fixed-income funds with a specified percentage of stocks and bonds. For example, 60% for stocks and 40% for bonds. The most popular type of these funds is target-date money. It changes the proportion of investments from equities to bonds as you approach retirement.
- Solution-Oriented Funds
These mutual fund plans are intended to help you achieve specific objectives. This includes saving money for your retirement or your children’s college or wedding. They have the shortest lock-in period, lasting only five years.
- Debt Mutual Funds
Based on the debt securities the fund firm invests in, debt funds are differentiated. The distinction is made depending on the issuer and the holding time of the securities. Further, the risk in debt funds is identified based on the tenure and issuer.
- Hybrid Funds
These plans invest in both debt instruments and equities. Whether they are equity or debt-oriented hybrid funds, it influences the proportional allocation to equity and debt. Debt-oriented hybrid funds have at least 75% of their exposure to debt instruments. whereas equity-oriented funds invest at least 65% of their assets in equities.
Types of Mutual Funds Based on Risk
- Low Risk
These types of mutual funds are where people put their money when they don’t want to take a chance with it. These investments are long-term. They are made in places like the debt market. As a result of their minimal risk, these investments also have modest returns. Gilt funds, which invest in government securities, are, for instance, low-risk funds.
- Medium Risk
These investments present a medium level of risk to the investor. They give more significant returns, making them perfect for people who are willing to take some risk with their investment. Further, these funds can be invested to accumulate wealth over time.
- High Risk
These mutual funds are perfect for people willing to take more significant risks with their money and who want to accumulate wealth. Inverse mutual funds are a kind of high-risk investment. Despite the increased risks associated with these funds, they also provide higher returns.
Types of Mutual Funds in India
Mutual funds can also be classified depending on their structure. There are three different types of mutual funds in India:
- Open-Ended Funds
These can be bought and sold all year. Here, fund managers attempt to invest in securities with more significant prospective returns. Open-ended fund purchases and sales are based on the fund’s current Net Asset Value (NAV).
- Close-Ended Funds
After a set maturity, closed-ended schemes allow for the redemption of investments. Even though these funds are also listed on the stock exchange, liquidity is low.
- Interval Funds
Open-ended and closed-ended fund features are combined in these funds.
These funds offer to purchase back shares regularly at a proportion of their net asset value (NAV). Typically, the fund will offer shares of interval funds for sale each day at the current net asset value.
Types of Mutual Funds Based on Investment Objectives
- Growth Funds
To provide financial appreciation, growth funds invest money in equity stocks. They are considered riskier funds, appropriate for investors with a long-term horizon. Since they are hazardous funds, they are also perfect for investors seeking greater returns on their capital.
- Pension Funds
After a significant investment period, pension funds provide regular returns. They are hybrid funds with modest yields. But they have the potential to offer consistent returns in the future.
- Tax-Saving Funds
These are referred to as Equity Linked Savings Schemes (ELSS). Each financial year, they are entitled to a tax deduction of up to Rs. 1.5 lakh. With 65% or more of the portfolio invested in equities, tax-saving funds are diversified equity-oriented funds.
- Capital Protection Funds
These funds split their investments between equities and fixed-income instruments. This could guarantee capital protection, i.e., little loss, if any.
Conclusion
If you know more about the different types of mutual funds, you may be better able to reach your financial goals. To maximize your investment returns, you can check the objective of the funds. Further, see whether it matches your needs or not, and then you may make investments.
You can also visit Piramal Finance to get a better understanding of mutual funds and the products and services they offer.