Mutual funds are investment vehicles that pool money from multiple investors to invest in a diversified portfolio of securities like stocks, bonds, or other assets. They can be categorized based on investment objective, structure, and asset class. Here’s a breakdown:
1. Based on Asset Class
- Equity Funds: Invest mainly in company shares. Higher risk, higher potential return.
- Large-cap, Mid-cap, Small-cap funds
- Sectoral/Thematic funds
- Index funds
- Debt Funds: Invest in bonds, government securities, debentures, etc. Lower risk, steady returns.
- Liquid funds, Short-term funds, Corporate bond funds
- Hybrid Funds: Combination of equity and debt to balance risk and return.
- Aggressive hybrid funds
- Conservative hybrid funds
- Money Market Funds: Invest in short-term debt instruments (Treasury bills, Commercial paper). Very low risk
- Solution-oriented Funds: Designed for specific goals like retirement or child’s education.
2. Based on Structure
Open-ended Funds: Can buy/sell units anytime. Highly liquid.
Closed-ended Funds: Units can only be bought at the time of the new fund offer (NFO). Traded on stock exchanges.
Interval Funds: Open for sale/redemption during specific intervals only.
3. Based on Investment Objectives
Growth Funds: Focus on capital appreciation (mainly equity).
Income Funds: Focus on steady income (mainly debt).
Balanced/Asset Allocation Funds: Mix of growth + income.
Tax-saving Funds (ELSS): Equity-linked savings schemes with tax benefits under Section 80C
4. Other Special Categories
- Index Funds / ETFs: Track a market index (like Nifty 50, Sensex).
- Fund of Funds (FoFs): Invest in other mutual funds.
- International Funds: Invest in foreign markets.
- Sectoral Funds: Invest in specific industries (IT, pharma, banking)