Types of Mutual Funds

This article would take you through types of mutual funds available in the market based on various categories(in this article three are illustrated)

By structure: Based on structure there are three types of mutual funds

• Closed ended fund:  These types of funds accepts investments only at the time of initial public issue and is closed for a certain period of time, say 3 or 4 years. The same can be traded at stock exchange by buying or selling it at the current Net Asset Value (NAV) prevailing at the time. It’s always better to avoid closed ended funds as investment can be done only at the time offer, when actually the fund has no performance history/record.

• Open ended funds:  The most common type of mutual fund prevailing in the market. This type of fund is open during its entire life and units can be purchased or sold directly to the Asset Management Company (AMC). If you believe that the performance of the fund is deteriorating, funds can be pulled out immediately.

• Interval Funds: This is basically a hybrid of closed and open ended funds. Where the fund is closed initially and thereafter, is opened at intervals for increasing the investor base so as to manage the fund in a better way.

By nature of portfolio: There are again three types of funds available under the head nature of portfolio:

• Equity mutual funds: In this type, the majority part of the corpus of the fund is invested in equity market. The investment can be made in mid cap funds, small cap funds, sector specific funds or tax savings funds.

• Debt mutual funds: As we all are aware, debts instruments carries lower risk and thus also provides you lower return as compared to Equity mutual fund in most of the cases. These type of funds are best suited for those looking for steady income and factoring time value of money to their investments to cope with inflation. Gift funds, income funds, liquid funds are some of the example of debt mutual funds.

• Balance mutual funds: Just like Interval funds, as the name suggests, balance mutual funds is a hybrid of equity and debt mutual funds.

By investment objective of the fund;

• Growth funds: Capital appreciation is the underline objective of growth funds. Again, the majority of the corpus is invested in equity for higher returns.

• Income funds: As the name suggests, just like debt mutual fund, Income fund’s underline objective is to provide fixed and steady income. This is the reason why, the majority of funds corpus is invested in debt instruments.

• Index funds: Last but not the least, comes the index funds, were the corpus is invested in stocks which constitutes the Index, such as Bombay Stock Exchange (BSE), National Stock Exchange (NSE) etc.