Mutual Funds

Types of Mutual Funds

1. Equity:  A fund that mainly invest in stocks .

Equity funds are further classified as :

Multi-cap fund:-  An open-ended equity fund with a minimum of 65% of assets across large-cap, mid-cap, small-cap stocks.

Large Cap Fund:- An open-ended equity fund with a minimum of 80% of assets in large-cap stocks.

Large & mid-cap fund:- An open-ended equity fund with 35% of its assets each in both large-cap and mid-cap stocks.

Mid-cap fund:- An open-ended equity fund with a minimum of 65% of its assets in mid-cap stocks.

Small-cap fund:- An open-ended equity fund with a minimum of 65% of its assets in small-cap stocks.

Dividend yield fund: – An open-ended equity fund with a minimum of 65% of its assets in dividend yielding stocks.

Value fund:- An open ended equity fund that follows a value investment strategy.A minimum of 65% of total assets are invested in equity.

Contra fund:- An open ended equity fund that follows contrarian investment strategy. A minimum of 65% of total assets are invested in equity.

Focused fund:- An open ended equity fund with maximum 30 stocks in portfolio (where ever the fund intends to focus like small cap, mid cap, multi cap and large cap). A minimum of 65% of total assets are invested in equity.

Sectoral/ Thematic:- An open-ended equity fund that invests in a particular sector is called a sectoral fund. These funds invests in a particular theme. Minimum investment in equity of a particular sector or theme is 80% of total assets.

ELSS:- Equity-linked saving schemes come with a lock-in period of three years that offers tax benefits. The minimum investment in equity is 80% of total assets.

2. Hybrid: A fund that basically diversify the investment among two or more asset classes.

Hybrid funds are further classified as

Conservative hybrid fund:- An open-ended hybrid fund investing 75-90% of its assets in debt instruments and remaining 10-25% of its assets in equity .

Balanced hybrid fund:- An open-ended hybrid fund investing in equity and debt instruments at a ratio of 40-60%. Arbitrage is not permitted in these schemes.

Aggressive Hybrid Fund:- An open ended hybrid fund investing mainly 65-80% of its assets in equity & remaining 20-35% is invested in debt instruments.

Dynamic asset allocation or balanced advantage funds:- An open-ended dynamic asset allocation fund that invests in a mix of equity and debt instruments .

Multi-asset allocation:-  An open-ended fund that invests in at least three asset classes with a minimum of at least 10% in each of the three asset classes.

Arbitrage fund:- An open-ended fund that generate returns from arbitrage opportunities with 65% of its total assets in equity.

Equity savings:- An open-ended fund that invests in equity, arbitrage and debt instruments with a minimum of 65% of its total assets in equity and 10% in debt . The Scheme Information Document must state the minimum hedged & unhedged proportion.

3.Debt: A fund that invest in interest oriented instruments like Government securities, Bonds, Debentures etc. They have a fixed maturity date & fixed interest payout.

Debt funds are further classified as

Overnight fund:- An open-ended debt fund that invests in overnight maturity securities.

Liquid Fund:- A open-ended fund that park money in money-market instruments such as commercial papers, certificates of deposit, treasury bills, with tenures of up to 91 days.

Ultra short duration fund:- An open-ended debt fund that invest in debt & money market instruments with weighted average tenure of 3-6 months.

Low duration fund:- An open-ended debt fund that invest in Debt & Money Market instruments with weighted average tenure of 6-12 months.

Money-market fund:- An open-ended debt fund that invests in money-market instruments with a maturity of up to one year.

Short duration fund:- An open-ended debt fund that invests in debt & money market instruments with a weighted average tenure of 1-3 years.

Medium duration fund:- An open-ended debt fund that invests in debt & money market instruments with a weighted average tenure of 3-4 years.

Medium to long-duration fund:- An open-ended debt fund that invests in Debt & Money Market instruments with a weighted average tenure of 4-7 years.

Long duration fund:- An open-ended debt fund that invests in Debt & Money Market instruments with a weighted average tenure of more than seven years.

Dynamic Bond:- An open-ended debt fund that invests across duration.

Corporate bond fund:- An open-ended debt fund that invests 80% of its total assets in the highest-rated corporate bonds.

Credit Risk Fund:- An open-ended debt fund that invests 65% of its total assets in Low rated corporate bonds.

Banking and PSU Fund:- An open-ended debt fund that invests a minimum of 80% of its total assets in debt instruments of banks, PSUs, public financial institutions.

Gilt Fund:- An open-ended debt fund that invests a minimum of 80% of its total assets in government securities across maturities.

Gilt fund with 10-year constant duration:- An open-ended debt that invests a minimum of 80% of its total assets in government securities that has a constant maturity of 10 years.

Floater Fund:- An open-ended debt fund that invests a minimum of 65% of its total assets in floating rate instruments.

4. Solution-Oriented Fund:-These funds mainly invest with an objective of certain goals like child education and retirement. Investment is done in equity stocks and Bonds.

Sub-Categories under these funds are

Children’s fund:- An open-ended fund that invests the majority of its total assets in equity & balance in debt. This fund comes with a lock-in period of at least 5 years or till the child attains the age of majority, whichever is earlier.

Retirement fund:- An open-ended fund having a lock-in period of five years or up to the age of retirement, whichever is earlier. Invests majority of its total assets in equity and remaining in debt

5. Others:- These funds includes Exchange traded funds(ETFs), Index funds, Fund of Funds(FOFs).

Index Funds/ ETFs:- An open-ended fund that tracks a particular index and invests a minimum of 95% of its total assets in securities of that particular index (which is being tracked).

FoFs (overseas/ domestic):- An open-ended fund of fund scheme that invest in an underlying fund. These funds invest a minimum of 95% of its total assets in the underlying funds.

Benefits of investing through Mutual funds

There are multiple benefits of investing through mutual funds:

• They are Professionally Managed by qualified fund managers.
• ELSS (Equity Linked Saving Schemes) funds offer a tax benefit under sec 80 C of Income tax Act,1961.
• They are affordable even for very small investors as they can start SIP in mutual funds with a very small amount i.e. Rs. 500 per month.
• They offers a much needed diversification to the portfolio by investing in a basket of equity and debt instruments.
• They are very easy to liquidate.
• They offer lot of convenience as transactions are completely online and transparent.