The mutual fund industry of India is continuously evolving.Along the way, several industry bodies are also investing towards investors education.Yet very less of our households consider mutual funds as a investment avenue.It is still consider as a high risk option.In fact basic inquiry about the type of mutual funds revels that these are perhaps most flexible, comprehensive and hassle free modes of investments that can accommodate various types of investor needs.
There are wide variety of Mutual Funds schemes that cater to your needs, whatever your age,financial position,risk tolerance and return expectations, Mutual Funds give you the option to invest your money across various asset classes like equity, debt and gold.This allows you to diversify your investments and reduce your portfolio risk.With so many options available in the market, however, it can be confusing to select type of mutual fund as per your financial goal.Here’s look at the some of types of Mutual Funds
1. Types of Mutual Funds on the based on Structure 1.Open Ended Funds : Open Ended funds are preferred for their liquidity because these funds are open to purchases and redemption at any time.They do not have a fixed maturity date.Open ended funds are not generally listed on any exchange.Ongoing transactions are based on the net asset value (NAV) of the fund.Hence, unit capital of open ended funds can fluctuate on daily basis.
2.Close Ended Funds : Closed end funds operate for a specific period of time.On specified maturity date, all units are redeemed and scheme comes to a close.It means these schemes have fixed maturity period.To provide a liquidity, these schemes are compulsorily listed on stock exchange .Investors may buy and sell the units, at the price prevailing in the stock market.
3.Interval Funds : Interval funds are a variant of closed-end funds.They are primarily closed-ended but become open ended at specific intervals.Subscriptions and redemptions allowed at specific intervals during specified transaction period.Minimum duration of interval period has to be 15 days.No redemption is allowed except during the specified transaction period. This schemes have to be mandatorily listed.
2.Types of Mutual Fund on the basis of underlying asset
A Scheme can be also classified as a growth scheme,income scheme or a balance scheme its asset class.Such scheme may be open ended or close ended as described earlier.Such scheme classified as follows :
Equity/Growth Funds : These scheme normally invest major part of their corpus in equity stocks/shares of companies.Such scheme are consider high risk of funds but also tend to provide high return.The aim of these scheme is to provide capital appreciation over medium to long-term.Equity funds can be further categorized as –
1.Index Funds :Index funds will only invest in those stocks that constitute a particular index.These funds replicate the portfolio of particular index such as BSE,NSE S&P NSE 50 etc.NAV of such funds would rise or fall in accordance with rise and fall in index.This would vary as compared to benchmark owing to factor known as a tracking error.
2.Tax Saving/ELSS Funds : These funds offer tax rebate to investor under tax laws prescribe from time to time.Such funds are growth oriented and invest predominately in equities. There is 3 years lock in period in these mutual funds & best suited for long investors seeking tax rebate and looking for a long term goal.
3.Sector Funds: Sector funds are invest in specific sector like banking, pharma, IT , infrastructure ,etc .or segments of capital like large cap, mid cap,small cap,etc.While these funds may give higher returns,they are more risky compare to diversified funds.Investors need to keep a watch on these funds, much exit on an appropriate time.
Debt/Income Funds : These scheme invest in fixed income securities like a corporate bonds,debentures,government securities, commercial papers and other money market instruments.These funds are less risky compare to equity mutual funds.Such funds are not affected due to fluctuations in equity market.The NAV of the such schemes are affected because of change in interest rate in country.Capital appreciation in such scheme may be limited.The aim of this fund is to provide regular and steady income to investor.Debt Funds can be further categorized as –
1.Liquid/Money Market Fund :These scheme generality invest exclusively safer short term instruments such as treasury bill ,commercial papers and certificate of deposits.Aim of liquid fund is to enable high liquidity and reasonable return.These funds provide relatively higher safety of principal and liquidity, but the return is also very low.Such funds are appropriate for corporate and individual investors as a mean to park their surplus funds for short periods.
2.Glit Fund :These funds invest exclusivity in government securities.Government securities have no default risk.NAV of these funds also fluctuate due to change in interest rate and other economic factors as is the scheme with income/debt oriented schemes.
3.Fixed Maturities Plan (FMP) :FMPs, are closed-end debt funds that invest in debt instruments with maturities that match the tenor of the scheme..These have fixed tenure like fixed deposits, though no return is promised or gardened. Securities are redeemed on maturity and proceeds paid to investor.FMPs have to be compulsorily listed on recognized stock exchange.
4.Capital Protection :These are close ended scheme, typically club debt securities with a derivative instrument or equity shares.The primary objective of this scheme is to safeguard the principal amount while trying to deliver reasonable returns.A large portion of the principal amount is invested in debt instruments.
3.Balance Funds : These are funds that invest in mix of asset classes.In some cases proportion of equity is higher than debt while in others vice a versa .The aim of balance fund is to provide both growth and regular income.NAV of such funds are likely to be less volatile compared to pure equity fund.These are appropriate for investors looking for moderate growth.
Other Funds :
Exchange Traded Funds (ETF) :ETF is a fund whoes units are trade like stock on the stock exchange.These can brought and sold only in stock market at real time prices which could be different from its unit NAV.You would need demat account to invest in this fund.
Gold ETF : Gold ETFs are exchange traded funds that are mean to track closely the price of physical gold. .Each unit of Gold ETF lets the investor own 1 gram of gold without physically owing it.With these funds, you are not only relieved of hassles of safekeeping your gold but also assured of purity since these fund invest in certified gold bars.You are also spared of the wastage and making charges that you would typically incur when you buy gold from jeweler You can also get option to convert it to physical gold with selected jwellers..
Fund of Funds (FOF) : FOF invests its corpus in other funds.Its portfolio holds other funds of the same funds house, or other fund houses These funds have two layers of expenses : one for FOF and the other for the schemes in which it invests. Such funds enables the investors to achieve greater diversification through one scheme.