Types of Mutual Funds in India

There are variety of Mutual Funds schemes in India which cater to different needs of investors, like risk tolerance, financial position and expectation of returns etc. Basically mutual funds are collection of several stocks so investor can choose from hundreds of different mutual funds according to his need. Mutual funds can be understood by dividing them in two categories, by structure and by nature.

Mutual Funds by structure:

• Open- Ended schemes: Open-Ended mutual Fund schemes are such schemes which are always open for investors to buy or sell units as per the NAV (Net Asset Value) prices. The best feature of Open- Ended schemes are its liquidity.

• Close-Ended Schemes: Close-Ended schemes are such schemes which are open for subscription for specific period and redemption is available only after a stipulated period which generally ranges between 3 to 15 years. The public can invest in Close-Ended funds at the initial public issue and thereafter the investor can buy and sell units at the stock exchange where they are listed. Some close-ended schemes provide an option of periodic repurchase of units as per NAV related prices. As per SEBI (Stock Exchange Board of India) regulations, Close ended schemes must provide at least one of the two exit route to the investors.

• Interval Schemes: Interval schemes are such mutual funds schemes which have both the features of open-ended and close-ended schemes. These types of schemes are open for public to buy and sell either in stock exchange or may be redeemed by the mutual fund company at predetermined intervals.

Mutual Funds by nature:

• Equity Funds: Equity Funds which is also known as Growth fund has an objective of long term capital gain by investing in shares of individual companies. According to the objective of the fund the money may be invested in blue chip companies or other small or new business companies. Equity funds have high risk but have potential of higher returns also.
• Debt Funds: Debt funds are also known as Income funds. The objective of income funds is to provide steady and regular income to the investor. They are again classified as under:

1. Gilt Funds: Gilt funds are those funds which invest major portion of their corpus in government securities. These funds have zero risk as they are backed by government.
2. Income Funds: These are funds which invest mojorly in Debentures, Government securities and bonds.
3. MIP: Funds which invest their maximum corpus in debt instruments. They have very minimum investment in equities. MIP's ranks high on risk-return matrix.
4. Liquid Funds: Liquid funds are also known as money market funds. These fundds invest in short term money market like treasury bills, call money etc. These are considered safest among all types of mutual funds.
5. Short term plans (STP's): These funds are for investments for the period ranging 3 to six months. They invest in short term papers like Commercial papers and Certificate of deposit.

• Balanced Funds: Balanced funds are those funds which have both the characteristics of Equity funds as well as Debt funds. A portion invested in equities provide good returns and portion invested in Debts provide security and stability.
  

What is Mutual Fund?

A Mutual Fund is a pool of money collected from small investors having a fund manager who manages the fund with predetermined investment objective. The fund manager invest the pool of money in specific Securities (stocks and bonds). When a person invest in mutual fund he becomes a unit holder or share holder of the fund and units are alloted to him. When the fund generate profits it is passed to unit holders of the funds.

Investment in Mutual Funds are considered as one of the best investment option as it is very cost effective and it is also easy for investor to invest because a large fund has to pay a lower trading cost as compared to retail investor.

The best part of Mutual Fund is its diversification which minimizes the risk and maximize the returns.