MUTUAL FUNDS TYPES

Mutual Funds are the professionally managed funds and the investment is pooled from various investors to purchase securities.[1] The origin of the concept of mutual funds took place in the United States of America around the 1890s with the Massachusetts Investors Trust becoming the first organisation to issue open-end mutual funds. The Mutual Funds can be invested in by both, retail as well as institutional investors.

The diversified investment through mutual funds offers many advantages over the other types of investment in the market. These funds lower the risk factor owing to the diversified investment and governmental supervision. The investors have the option of availing professional management i.e. portfolio managers for the purpose of supervising their funds. The articles seeks to discuss the various types of mutual funds that are functional in India.

Mutual Funds can be classified into the following types-

On the basis of structure

1.Open-ended Funds

Open-ended funds allow the investors to invest in multiple types of shares simultaneously. The value of these shares depends on their net asset value. Hedge funds are exchange-traded funds types of open-ended funds. These funds require low investment minimum and are comparatively more liquidable.

2.Close-ended Funds

These funds allow a limited number of shares to be issued at a time. These funds can only be issued once i.e. in the initial stages once the offer is made and the investors have to wait till the particular term is over in order to invest in the close-end funds whereas the open-end funds are open to continuous investment.

3.Interval Funds

These funds are a combination of the characteristics of open-ended and close-ended funds. The Interval funds can be sold or purchased at regular intervals specified by the fund houses.

On the basis of asset class

1.Equity Funds

These funds are used to invest in equity shares/stocks and add to the capital market. These funds are subjected to higher risk and thus, are most suited for the investors who wish to make large scale investment and can bear the losses due to changing market conditions.

2.Debt Funds

These funds invest in the fixed income assets and provide fixed return. Thus, these funds are comparatively safer investment options.

3.Hybrid Funds

These funds possess the features of both, equity and debt funds. The funds ensure that the balance between the risk and returns is maintained as it is generally the case that certain part has higher portion of equity while the other has a higher portion of debt.

Based on investment objectives

1.Growth Funds

Under Growth funds, the investment is made in the equity units and are thus, suitable for those who want to invest surplus amounts and can manage to bear the risk.

2.Income Funds

The money is invested in fixed income units like bonds, certificates of deposits and securities. These funds are a suitable option for those who want to begin investing in the market and are not well acquainted with the market conditions.

3.Liquid Funds

The Liquid funds offer a short-time investment and higher liquidity. These funds ensure minimum level of risk with moderate returns.

4.Tax-Saving Funds

Under these funds, the investment is made in equity shares and qualifies for deduction under the Income Tax Act.

5.Pension Funds

These funds refer to the pooled money that is invested with a long term goal of receiving fixed returns after the investor decides to retire. The investment can be divided into equity and debt.

6.Capital Protection Funds

The investment is largely made under the equity units however, fixed returns are also ensured by investing some part of the money in the fixed-returns units as well.

7.Fixed Maturity Funds

These funds are invested in debt instruments and the maturity period for the same varies from one to five months.

On the basis of risk

The mutual funds are also divided on the basis of level of risk attached. The funds are divided into three categories namely High Risk, Low Risk and Medium Risk Funds. The level of risk depends on the nature of funds for example, high risk is generally associated with investment in equity investments and lower risk is ensured in the fixed-return based investments i.e. debt instruments.

[1] https://www.merriam-webster.com/dictionary/mutual%20fund