Mutual Funds

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A mutual fund is an investment vehicle where many investors pool their money to earn returns on their capital over a period. This corpus of funds is managed by an investment professional known as a fund manager or portfolio manager. It is his/her job to invest the corpus in different securities such as bonds, stocks, gold and other assets and seek to provide potential returns. The gains (or losses) on the investment are shared collectively by the investors in proportion to their contribution to the fund. Types of Mutual Funds

It is important to understand the Mutual Fund type and their features. Mutual Fund types can be classified based on the following characteristics.

Based on Asset Class

Equity Funds

Debt Funds

Money Market Funds

Hybrid Funds

Based on Structure

Open-ended Funds

Closed-ended Funds

Interval Funds

Based on Investment Goals

Growth Funds

Income Funds

Liquid Funds

Tax-Saving Funds

Various type of Mutual Funds exist to cater to different needs of different people. Largely, they are of three types.

Equity or Growth Funds

These invest predominantly in equities i.e. shares of companies

The primary objective is wealth creation or capital appreciation.

They have the potential to generate higher return and are best for long-term investments.

Examples would be

  • “Large Cap” funds which invest predominantly in companies that run large established business.

  • “Mid Cap” funds which invest in mid-sized companies.

  • “Small Cap” funds that invest in small sized companies.

  • “Multi Cap” funds that invest in a mix of large, mid and small sized companies.

  • “Sector” funds that invest in companies that are related to one type of business.
    For e.g.Technology funds that invest only in technology companies.

  • Thematic” funds that invest in a common theme. For e.g. Infrastructure funds that invest in companies that will benefit from the growth in the infrastructure segment.

  • Tax-Saving Funds.

Income or Bond or Fixed Income Funds

These invest in Fixed Income Securities, like Government Securities or Bonds, Commercial Papers and Debentures, Bank Certificates of Deposits and Money Market instruments like Treasury Bills, Commercial Paper, etc.

These are relatively safer investments and are suitable for both Capital Protection and Income Generation.

Example would be Liquid, Short Term, Floating Rate, Corporate Debt, Dynamic Bond, Gilt Funds, etc.

Hybrid Funds

These invest in both Equities and Fixed Income, thus offering the best of both, Growth Potential as well as Income Generation.

Example would be Aggressive Balanced Funds, Conservative Balanced Funds, Pension Plans, Child Plans and Monthly Income Plans, etc.