Mutual funds are widely used by investors because of their flexibility, convenience, and rapid adaptability to market conditions. An attractive feature of mutual funds is the variety of investment options they provide to shareholders. India now has more than 44 active mutual funds. To accommodate the varying requirements of investors, these funds provide a wide variety of expenditure options. types of mutual funds will cover in-depth in this article, along with various examples for your convenience.
Each and every mutual fund aspires to do two things: reduce overall investment risk while capitalizing on market gains. It’s true that the potential for loss is higher for some funds than for others, but the potential for gain is also greater. The most common varieties of mutual funds dissect in this article.
Top 30 – Types of Mutual Funds
Most investment mutual funds can be classified into one of four categories: stock, money market, bond, or target-date. Money market funds are the most popular type of mutual fund despite the wide variety of mutual fund options available. This topic outlines types of mutual funds which will assist you to achieve desired goals in your life.
Stock Funds
Equity funds, also known as “stock funds” due to their primary investment focus on stocks, are a type of mutual fund. They invested the money of numerous buyers from various walks of life in the stocks of numerous businesses.
The profitability of these funds is entirely dependent on the success of the underlying shares in the stock market, as measured by price rises or reductions. Long-term gains from equity funds also have the potential to be substantial. Because of this, the inherent danger of these resources is also noticeably higher now.
Aggressive Growth Fund
The Aggressive Growth Fund seeks to provide substantial financial returns to its investors despite the higher risk associated with such an investment. A fund’s beta is a measure of how its performance varies in relation to the overall market. This would do notwithstanding the fund’s susceptibility to market fluctuations. If the market’s beta is 1, a high-quality growth fund will have a beta of 1.10 or higher.
Funds of Funds
To capitalize on the various advantages of a diversified portfolio of mutual funds, investors can turn to “Funds of Funds,” often known as “multi-manager mutual funds.” These funds invest in a wide variety of other funds so that they can maximize their impact. In conclusion, it is more cost-effective to invest in a single fund that invests in numerous other funds so as to achieve diversification. This is another types of mutual funds.
Pension Funds
You should save a significant portion of your income into a pension fund over a lengthy period of time if you want to ensure that you and your family will be financially secure after you retire. You can use this to better prepare for events like a child’s wedding or a medical emergency.
Because savings, no matter how large, eventually run out, it’s not wise to deposit all of your retirement money in a single account. One of the various ways that financial institutions like banks and insurance firms make money is through the Employees Provident Fund.
Tax-saving Funds
The Equity Linked Savings Scheme (ELSS) has gained significant traction among investors over the past few years. They offer the shortest lock-in period at only three years and help you save money on taxes while also increasing your wealth.
This makes them an excellent option for shoppers concerned with value for money. Many investors claim that they can avoid paying taxes altogether by investing the bulk of their savings into stocks and similar assets. If you have a stable income and a long-term investment strategy, these ETFs may be a smart option for you.
Open-ended Funds
Open-ended funds allow investors to buy and sell units at any time and in any quantity they choose. At any moment, and at the current NAV (Net Asset Value), investors may sell their shares of a mutual fund or exchange them for shares of another mutual fund.
Only because of this does the unit capital fluctuate when members come and go. It is possible for an open-ended fund to stop accepting new investors if it does not wish to or is unable to manage large sums of money. This is another types of mutual funds.
Growth Funds
The majority of a growth fund’s assets are often invested in equities and other high-yielding assets. Growth funds may be a good option for buyers (mainly Millennials) who have the financial means to invest in riskier plans (but with the possibility of big returns) or who interest in the scheme.
Interval Funds
Open-ended and closed-end components are both present in interval funds. Combining these two types of investments is what “interval funds” do. These funds will only be accessible for purchase or redemption at specified hours determined by the fund house.
In addition, business transactions will prohibit for at least two years. If you have a short-term goal that can accomplish within the next three to twelve months, these funds are for you.
Balanced Funds
Mutual funds with holdings in equities, bonds, money market instruments, and other asset classes are together referred to as “balanced funds.” The objective is to reduce the inherent risk of investing in various asset classes. This kind of investment vehicle also goes by the moniker “asset allocation fund.” Two varieties of these funds exist, each catering to specific client requirements.
You may be able to gain regular exposure to numerous asset classes with some funds. Variable percentage shares are used by a few other funds. Buyers’ lifestyles and the functioning of markets evolve simultaneously. The funds can utilize to acquire anything of value. In order to maintain the progress made in the prudent management of the portfolio.
Debt Funds
Bonds, securities, and government bills are common examples of the types of fixed-income investments that make up the bulk of a debt fund’s holdings.
They invest in a variety of fixed income instruments, including Fixed Maturity Plans (FMPs), Gilt Funds, Liquid Funds, Short-Term Plans, Long-Term Bonds, and Monthly Income Plans.
Because the interest rate and maturity date predetermine, these investments may appeal to risk-averse investors looking for a passive source of income. This is the types of mutual funds.
Medium-risk Funds
Because the fund manager invests in both debt and equity funds, the perceived level of risk is intermediate. The volatility of the NAV is manageable, and returns typically range from 9% to 12% annually.
Using Structure
The other types of mutual funds is this. Mutual funds are typically classified based on their risk profile and asset class, among other factors. Based on their structure, mutual funds can categorize as either open-ended, closed-end, or interval. The ability to buy and sell individual shares of the fund is the primary distinction between the three types of funds.
International / Global Funds
Although they share a similar meaning and pronunciation, “global funds” and “international funds” are two distinct concepts. Some of a global fund’s assets may be held in the investor’s home country even while the majority of the fund’s assets are invested in markets outside of the investor’s country.
The International Funds are restricted to investing in markets outside of their own country. Investing in global funds can be risky despite their diversification and global perspective due to the constant flux of laws, markets, and currencies. However, global funds have historically performed well over the long run and offer inflation protection.
Index Funds
Those who don’t want to put in much effort should consider index funds, which are investments in an index. No one is in charge of managing the money in the account. To choose which stocks to hold and in what proportions, index funds analyze the market index.
Equities with ratios close to those of the equities it detected are invested in. They are secure even if they cannot outperform the market (since they simply replicate the index’s performance) and so are not widely used in India.
Money Market Funds
Stocks are traded by purchasers on the stock market. The money market, or capital market, cash market, or simply the market, is where investors put their money. Bonds, Treasury bills, date-specific securities, and CDs are all types of money market instruments. The government manages it with the support of banks and other financial institutions.
They achieve this by putting securities on the money market on the market. Your money will be invested by the fund’s managers, and you will receive dividends on a regular basis. The risk of losing money on these sorts of funds is significantly reduced if you select a plan with a time of no more than 13 months. This is important types of mutual funds.
Capital Protection Funds
When compared to other types of funds, Capital Protection Funds typically offer returns that are 12% lower. Fund assets are split between stocks and fixed-income investments like bonds and CDs. Investment security requires a minimum commitment of three years (closed-ended). The reports must also be subject to taxation. You should still go for it even if there is a little probability of failure.
Emerging Market Funds
Many investors avoid investing in emerging markets because they fear the high risks and potential losses associated with doing so. Investors in India’s stock market should anticipate a healthy return because to the country’s expanding economy and expanding market share.
They are susceptible to market fluctuations just like any other market. In addition, developing economies predict to account for the bulk of global growth in the coming decades.
Low-risk Funds
Investors are wary of high-risk investments when the rupee’s value could drop or an unexpected natural disaster could strike the country. When this occurs, it is common practice for fund managers to recommend that their clients invest in liquid, ultra-short-term, or arbitrage funds. Investors are free to go on when prices are stable, but their returns might be between 6% and 8%.
Liquid Funds
Because they can only hold money market funds and other debt assets with maturities of up to 91 days, liquid funds, like income funds, are classified as debt funds. You can only deposit up to ten million rupees.
Liquid funds distinguish from other forms of debt funds by the manner in which their Net Asset Value determine. Liquid funds calculate their NAV every day of the year, including Sundays, while other types of funds only do so on business days.
Income Funds
Income funds are a sort of debt mutual fund that can invest in various securities like equities, bonds, and CDs. Expert portfolio managers adjust holdings according to interest rate fluctuations without jeopardizing the portfolio’s security.
This is why, historically, income funds have provided their buyers with higher returns than deposits. This is so because the management of income funds is handled by experts. Investors with a two- to three-year horizon and a preference for lower risk should consider these options.
High-risk Funds
High-risk mutual funds are an option for risk-takers who are seeking high returns in the form of interest and dividends. These funds need careful management and are best for those with a high tolerance for risk. Their progress should evaluate frequently because they are susceptible to market volatility. Returns of 15% are typical, with some high-risk funds offering returns of 20% or more.
Index Funds
Normal index funds mimic the performance of the index they track. On the other hand, an inverse index fund would perform in the opposite direction of the index it tracks. Simply said, it’s selling your stock when its price drops so you may purchase it again at a lesser price and keep it in your portfolio until its value rises again.
Real Estate Funds
Although the Indian real estate market is expanding, many potential purchasers remain wary of investing in such high-stakes enterprises. Because the owner can participate in the project in a roundabout way through investments in real estate corporations or trusts rather than the projects themselves, real estate funds are a wonderful option. The hazards and legal difficulties of land ownership mitigate when making a long-term commitment. In addition, you gain access to a particular sum of money.
Very Low-risk Funds
It is common knowledge that the low risk profile of liquid funds and ultra-short-term funds (with duration’s of one month to one year) explains their poor returns (at best, 6%). Investors adopt this route so they may pay their immediate financial obligations and feel secure about their capital.
Market Neutral Funds
Like hedge funds, market-neutral funds seek to provide investors with positive returns without exposing them to any particular market trend. The large returns and improved risk management offered by these funds allow even inexperienced investors to outperform the market without going bankrupt. This is good types of mutual funds.
Hybrid Funds
Hybrid funds, also known as balanced funds, are the optimal combination of bonds and equities. They bridge the gap between pure equity funds and pure debt funds. It’s possible that the figure will shift, remain stable, or both. In a nutshell, it combines the advantages of two separate investment vehicles.
It achieves this goal by allocating 60% of its assets to equities and 40% to bonds, or vice versa. Instead of relying solely on low-risk income techniques, investors who are willing to take on greater risk in exchange for the chance of higher “debt plus returns” may wish to consider investing in hybrid funds. This is another types of mutual funds.
Fixed-term Funds
Stocks purchased at the end of the fiscal year qualify for triple indexation, a tax benefit popular among investors. If you’re concerned about the volatility of the debt market, a Fixed Maturity Plan (FMP) is a good way to diversify your investments over a wide range of asset classes.
FMPs, like FDs, are closed-ended plans with a definite termination date, often between one month and five years in the future. Anytime between now and then is acceptable. The management of the fund promises that the investment will maintain for the same period of time, allowing the accrued interest to be withdrawn at the end of the FMP’s term.
Gift Funds
If you want to help the people you care about save money for the future, you may set up a mutual fund or a structured investment plan (SIP) and suggest that they invest in it. Initial payments can only give to that special someone once.
Exchange-traded Funds (ETFs)
This investment vehicle, known as an “index fund,” is traded like any other on financial markets. Because of exchange-traded funds, investors now have access to a wide range of global stock markets and niche markets.
Because of this, they now have many more options for making investments. Similar to mutual funds, exchange-traded funds (ETFs) allow transactions to take place in real time at fluctuating prices throughout the trading day. One of the best types of mutual funds is this.
Closed-end Funds
Closed-end funds have a fixed purchase price per unit, so investors can plan accordingly. In other words, the fund company will be unable to sell more units than the cap allows.
After a specific date, investors are unable to purchase units in some funds during a promotional period known as the New Fund Offer (NFO). Fund managers are willing to work with investors of all sizes and NFOs have a predetermined expiration date. As a result, SEBI has recommended that investors have the option of selling their shares in the schemes or withdrawing their money.
FAQ
Who Gets Something out of Mutual Funds?
Profits accrue to investors thanks to well-managed portfolios, dividend reinvestment, less risk, simplified pricing, and equitable pricing. There are a lot of potential issues that could arise, including excessive fees, inefficient taxation, poor trade execution, and human error on the part of management.
Can Shares in a Mutual Fund Ever be Sold?
You can easily sell your shares in a mutual fund at any moment because they are a liquid investment. However, you should find out from the fund if there are any costs associated with buying and selling shares. Mutual fund redemption’s that result in capital gains may have tax implications.
Can Mutual Funds Help me Make Money?
There are two ways to profit from investing in a mutual fund: income and capital gains. Funds that invest in stocks provide earnings based on the fund’s performance in the stock market. If you decide to cash out, you’ll get the following deposit.
Final Words
A mutual fund is an investing business that uses its investors’ combined capital to purchase securities including stocks, bonds, and short-term loans. All of the assets held by the mutual fund combine to form its stock. There are benefits and drawbacks to investing in mutual funds rather than purchasing stocks directly. This article discusses in detail about types of mutual funds. To further explore the topic of types of hedge funds, keep reading.
