There are many ways to classify mutual funds. The Securities and Exchange Board of India (SEBI) has divided them into groups according to the securities in which they invest. We have listed All Types of mutual fund investments available in India according to their categories.
Mutual Fund types categories determined by asset class:
Debt funds, also referred to as fixed-income funds, make investments in securities such as corporate bonds and government securities. These funds are regarded as comparatively less risky and seek to provide investors with reasonable returns. If you want a consistent income and are risk-averse, these funds are perfect for you.
Investing in stocks is what equity funds do, as opposed to debt funds. One of these funds’ main goals is capital appreciation. However, there is an increased level of risk associated with equity funds because their returns are dependent on changes in the stock market. They are a good choice if you want to invest for long-term goals like saving for retirement or buying a home because the level of risk decreases over time.
What happens if you want debt and equity in your investment? Well, hybrid funds are the answer. Hybrid funds invest in a combination of fixed-income and equity securities. Hybrid funds are further divided into several smaller categories according to how their assets are allocated, or how much is allocated to debt and equity.
mutual fund types according to their classification
Large Cap Mutual Funds are equity funds that allocate a greater percentage of their overall assets to market capitalization to businesses with a high market size. Thus, large cap funds are renowned for producing consistent wealth compounding and dividend payments.
Additionally, these schemes are known to produce steadier returns and carry a lower risk than small-cap or mid-cap schemes. For investors with a long investment horizon and a relatively lower risk appetite, they are a good option.
Investments in small cap companies—those with a market capitalization of less than Rs. 5,000 crores—are made by small cap mutual funds. These are the funds that invest almost entirely in small-cap stocks and very little in higher market categories. They are recognized to be significantly riskier in comparison, but they do have a tendency to outperform large or mid-cap funds.
According to market experts, small-cap mutual funds have the potential to yield the highest returns over an extended period of time.
A mid-cap fund is a type of pooled investment that concentrates on businesses with market capitalizations between those of listed stocks in the middle. With a lower risk factor than small-cap funds, which are mid-sized businesses, they offer comparatively higher returns than large-cap companies.
Investors can access a diverse portfolio of mid-cap companies through mid-cap funds. Investments in well-established companies are made by mid-cap stock funds.
ELSS Mutual Fund
ELSS funds are equity investment funds that allocate a significant portion of their capital to equity or instruments related to equity. Since ELSS funds provide a tax exemption of up to Rs. 150,000 from your yearly taxable income under Section 80C of the Income Tax Act, they are also known as tax-saving schemes.
An ELSS fund is an equity-oriented plan that requires a three-year lock-in period. If someone participates in an ELSS scheme, they can receive tax exemption on their investment up to a maximum of Rs. 150,000. Additionally, any income you receive from this scheme at the conclusion of the three-year period will be taxed at a rate of 10% (LTCG) if the amount exceeds Rs. 1 lakh.
A portfolio of equities and equity-related stocks from companies with a range of market capitalizations is where Multi Cap Funds invest their corpus. Using a multi-cap fund, you can invest in large-cap, small-cap, and mid-cap companies. Since each scheme makes investments in varying amounts, the Multi Cap Fund category is a good choice to match your level of risk tolerance.
A multi-cap fund is thought to be a superior choice for building wealth because its fund managers can take advantage of investment opportunities all over the market.
Types of Mutual funds based on structure
Open-ended mutual funds
Mutual funds with open-ended accounts allow investors to make investments on any business day. The Net Asset Value (NAV) of these funds is used for both purchase and sale. Since you can withdraw your units from an open-ended fund whenever it is convenient for you, these funds are very liquid.
Close-ended mutual funds
Closed-ended funds have a maturity period that is predetermined. Only at the fund’s launch can investors make contributions, and they can only take their money out of the fund when it matures. In the stock market, these funds are listed similarly to shares. But, there are very few trading volumes, they are not very liquid.