At the end of May 2023, there were 1,441 mutual fund schemes in India, catering to the diverse needs of investors.
All these schemes can be classified in different ways based on their various characteristics. To make it simple let us categorise it. Mainly we can categorise it into 3 types of mutual funds schemes. Here's a breakdown of the main categories:
1 By Asset Class
An asset class is a group of investments that share similar characteristics and are governed by the same laws and regulations.
Equity Funds
Equity funds invest primarily in stocks of companies. They offer the potential for high returns but also come with higher risks due to stock market fluctuations. It can be further divided as:
Growth Funds: Invest in companies expected to grow faster than the overall market.
Value Funds: Focus on undervalued companies with potential for appreciation.
Income Funds: Invest in dividend-paying stocks.
Sector Funds: Focus on specific industries or sectors, like technology or healthcare.
Index Funds: Track a specific market index, such as the S&P 500.
Small-Cap, Mid-Cap, and Large-Cap Funds: Invest in companies based on their market capitalization.
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Debt Funds
Investment in fixed-income securities like government bonds, corporate bonds, and money market instruments. They offer lower returns than equity funds but are generally considered to be less risky.
Money Market Funds:
Invest in short-term, high-quality investments issued by government and corporate entities. These are considered low-risk and highly liquid.
Hybrid Funds invest in a combination of stocks and bonds. They offer a balance between risk and return, depending on the asset allocation of the fund.
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2 By Investment Objective
Growth Funds aim to achieve capital appreciation by investing in stocks of companies with high growth potential.
Income Funds focus on generating regular income by investing in bonds, fixed-income securities, or dividend-paying stocks.
Fixed-Income Funds (Bond Funds):
Corporate Bond Funds: Invest in bonds issued by companies.
Government Bond Funds: Invest in bonds issued by government entities.
Municipal Bond Funds: Invest in bonds issued by state and local governments.
High-Yield Bond Funds: Focus on lower-rated, higher-risk bonds offering higher yields.
Balanced Funds aim to provide a balance between capital appreciation and income generation by investing in a mix of stocks and bonds. They are just like hybrid funds.
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3 Other Types
Index Funds passively track a particular market index, such as the S&P 500. They typically have lower fees than actively managed funds.
Sector Funds invest in companies within a specific industry sector, such as technology or healthcare.
Target-Date Funds are designed for investors with a specific retirement date in mind. The asset allocation of the fund gradually becomes more conservative as the target date approaches.
Speciality Funds:
Regional Funds: Invest in specific geographic areas.
Socially Responsible Funds (ESG Funds): Invest in companies that meet certain ethical, social, and environmental criteria.
Fund of Funds:
Invest in a portfolio of other mutual funds rather than directly in stocks, bonds, or other securities.
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Global and International Funds:
International Funds: Invest in companies outside of the investor's home country.
Global Funds: Invest in companies worldwide, including the investor's home country.
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Each type of mutual fund carries different levels of risk and potential return, so it's important to choose one that aligns with your investment goals, time horizon, and risk tolerance.
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