What are Different Types of Mutual Funds in India

by Shreya Paliwal Mutual Fund Financial services

Mutual funds are an attractive investment option for people looking to mobilise their savings and not keep it in the cupboard anymore. In olden times, it was a norm to store one’s savings in physical form and use it when needed in future. The major issue with that was the money did not used to grow, it remained stagnant and did not contribute to the economy or the welfare of the person saving the same.

But, in case one decides to invest it now, it has the potential to grow through power of compounding and make one’s financial security stronger. Of course, a lot of factors such as investment tenure, amount, financial discipline, etc. are at play here but if one takes the basic step of investing their money, it can work like magic. One of the best ways to do it is through different types of mutual funds in India.

What is a mutual fund?

A mutual fund is a financial instrument that pools assets from shareholders to invest in securities such as bonds, stocks, money market instruments, etc. They are managed by professional fund managers who attempt to produce returns for the fund investors. Let us discuss the types of mutual funds in India and gain a better idea on the concept.

Based on structure:

Open ended funds - Here, investors can enter or exit throughout the investment tenure at the applicable NAV. These are ideal for investors seeking liquidity always.

Close ended funds - These funds have a pre-decided unit capital amount. Here, redemption is bound by the maturity date but to facilitate liquidity, schemes trade on the stock exchanges.

Based on investment goals:

The types of mutual funds in India are varied, based on your purpose, and here are the ones based on what your goal in investing is.

Tax saving funds - If one has a goal of saving taxes, while building wealth, this is a type of mutual fund to opt for. ELSSs funds gives one the opportunity to experience dual benefits.

Growth funds - These funds mainly invest in high-performing stocks with the aim of capital appreciation. Best for those seeking high returns over a long period.

Pension funds - These mutual funds invest with the idea of providing regular returns after a long period of investment. They are usually hybrid funds that give initially give low returns but have the potential to provide steady returns in the future.

Coming to hybrid funds, please note that these funds invest in both, equity and debt, and thus try to offer you the benefit of diversification. There are various types of hybrid funds in India. Some of them are listed below -

· Aggressive hybrid funds: These hybrid funds invest 65 - 80% of their assets in equity and equity related securities and rest in debt and money market instruments. There are most aggressive kind of hybrid funds.

· Dynamic asset allocation funds: Also known as balanced advantage funds, these funds change its asset allocation dynamically without having any upper or lower limit for equity and / or debt allocations. Dynamic asset allocation funds are usually lesser volatile compared to aggressive hybrid funds.

· Multi asset allocation funds: These hybrid funds provide exposure to three or more asset classes vide, equity, debt, gold and real estate investment trusts, etc. As per SEBI mandate, the multi asset allocation funds must invest at least 10% of its corpus in each of the three assets classes.

This read was about various types of mutual funds in India including the hybrid funds. To know more about these, you should contact your financial advisor.