What are the Categories and Types of Mutual funds? 

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Investments today do not just draw the line at houses, gold, or locking in your sum of money for a fixed tenure – the horizons have been broadened. Mutual funds are investment tools that are part of those broadened horizons. You may ask why, well – firstly, they are known to be one of the most flexible investment instruments, and secondly, you have a lot of choices. In this article, we are going to look at what kind of choices you have through mutual funds by understanding the different kinds of mutual funds in India. So, buckle up – this is going to be an informative ride. 

First things First – What is a Mutual Fund? 

A mutual fund is a financial vehicle that is a made-up pool of money compiled from a lot of investors to invest in securities such as bonds, stocks, and money market instruments. They are typically operated by professional capital gains or income for the fund’s investors. A mutual fund’s portfolio is structured and maintained to match investment goals that have been mentioned in the prospectus. 

Even if you are a small investor or an individual trying to gain access to professionally managed portfolios of bonds, equities, and other securities – you will get to go through that through a mutual fund. 

Now, without further adieu – let’s get going to the part where we talk about the different types of mutual funds. 

The Distinct Types of Mutual Funds Explained 

If you have been thinking about investing in mutual funds, your very first job would be to know what kind of mutual fund is your kind of mutual fund. Here is a broad list, have a glimpse at: 

  • Pension Funds 
  • Fixed Maturity Funds 
  • Capital Protection Funds 
  • Aggressive Growth Funds 
  • Tax-Saving Funds 
  • Liquid Funds 
  • Income Funds 
  • Growth Funds 
  • Hybrid Funds 
  • Money Market Funds 
  • Debt Funds 
  • Equity Funds 
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The Various Mutual Fund Categories 

Are you ready to look at them in detail? Here we go: 

1) Pension Funds 

A pension fund – is also famously known as the retirement plan. You will get to invest a portion of your income into this plan, and the core objective behind this fund is to have a regular income after retirement. The PFRDA has authorized around six companies to operate as fund managers. The funds will offer you better returns than an EPF or PF alone. 

2) Fixed Maturity Funds 

These are tenure mutual funds that invest the corpus in debt tools maturing in line with the tenure of the scheme. Now, you need to remember that this tenure can range from a few months even to years. 

3) Capital Protection Funds 

Capital protected funds are the funds that invest in fixed income equities and options. They are closed-ended hybrid mutual fund schemes that clearly focus on debt to get capital protection. Their allocation is usually between equity and debt – also based on the bond yield and the tenure of the scheme. 

4) Aggressive Growth Funds 

The Aggressive Growth Funds is a mutual fund that looks into capital gains through investments in shares of growth company stocks. The investments held with these funds are the companies that demonstrate high growth potential – but also carry greater risk. 

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5) Tax-Saving Funds 

A tax-saving mutual fund is one that invests a minimum of 80% of the assets inequities. They are essentially equity-associated savings schemes that offer tax perks to you under Section 80C of the Income Tax Act. 

6) Liquid Funds 

A liquid fund is a type of mutual fund that invests in money market instruments and debt funds that have a maturity tenure of 91 days only. Investments in these funds are with debt instruments such as T-bills, CPs, Certificate of Deposits, and Bank Term Deposits, among various others. 

7) Income Funds 

An Income Fund is a kind of mutual fund or ETF that focuses on current income, either on a monthly or quarterly base. These funds hold a variety of government, corporate debt, municipal, and dividend-paying stocks. 

8) Growth Funds 

Growth funds are another type of growth fund where that aims at achieving capital appreciation through the investment of funds in growth stocks. They focus their attention on companies and organizations that display exceptional growth in revenue or earnings instead of companies that pay a dividend to the investors. 

9) Hybrid Funds 

Hybrid funds invest in both debt and equity instruments to get diversification and avoid the concentration risk. A good blend of the two gives higher returns than a regular debt fund while not being as risky as equity funds. The choice of a hybrid fund would also depend on your risk appetite and your investment objective. 

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10) Money Market Funds 

Money market funds are funds that invest in highly liquid, near-term tools. They are inclusive of cash, cash equivalent securities, and debt-based securities with short tenure. They intend to offer investors high liquidity and a low level of risk. Money market funds – they are also known to be money market mutual funds. 

11) Debt Funds 

A debt fund is a scheme that invests in fixed income tools like Government and Corporate debt securities and money market tools. These funds are also known to be fixed-income funds. 

12) Equity Funds 

This is a mutual fund type that invests only in shares and stocks of companies. They are also popularly known as growth funds. They could either be active or passive. These funds are also further divided into capital capitalization, such as Large, Mid, Small, and Micro Cap funds. 

Here we come to the end of the different types of mutual funds in the Indian investment market. It all ends up in you choosing the right kind of fund for you and achieving that financial goal you have been striving to. 

Final Takeaway 

The idea of investing in mutual funds begins with choosing the right kind of mutual fund for yourself. Have you ever thought about investments in funds that have the wrong risk association? That would be a bad choice – so make sure you analyze all of the options you have on the table.