Mutual funds enable investors to invest in diversified securities under professional fund management. The benefits of this investment instrument are many, including high returns and flexibility. The rising popularity and portfolios have helped the mutual fund market expand greatly. Currently, multiple types of mutual funds exist in the market, with overwhelming options available to align with the different investment goals.

Here, we shall explore the many types of mutual funds and their features. Read on and find the best mutual fund for your investment portfolio.

Types of Mutual Funds

With the huge range of mutual funds, it is best to categorise the types based on different important parameters, like fund structure, asset class, investment goals, and so on!

Based on Structure

Mutual funds, even though the working mechanism is the same, can have different structures:

Open-Ended Funds: These funds have no fixed date of maturity. Liquidity is the feature here, allowing investors to buy and sell at the NAV, or Net Asset Value, and at their convenience.
Close-Ended Funds: Investors can invest only within the initial launch window or the New Fund Offer. The stock exchange price can differ from the NAV due to various market conditions. Investors can sell the units directly to the mutual funds in some schemes.
Interval Funds: These funds combine the features of open and close-ended funds. Investors can trade their units at predetermined intervals.

Based on Asset Class

Mutual funds are categorised as such based on the asset class invested in:

Equity Schemes: The investments are made primarily in stocks or equities. The funds tend to generate high returns in the long run but are also subject to market volatility. Equity schemes are further classified into these sub-categories based on the minimum investment requirement of the total assets:
- Multi-Cap Funds: Investment in equity and equity-related instruments; minimum of the total assets - 65%
- Large Cap Funds: Investment in large-cap companies; minimum of the total assets - 80%
- Large & Mid Cap Funds: Investment in large-cap and mid-cap companies; minimum of the total assets - 35% (in each)
- Mid-Cap Funds: Investment in mid-cap firms; minimum of the total assets - 80%
- Small Cap Funds: Investment in small-cap companies; minimum of the total assets - 60%
- Dividend Yield Funds: Investment in primarily dividend-paying stocks; minimum of the total assets - 65%
- Value Funds: Investment in equity and equity-related products following a value investment approach; minimum of the total assets - 65%
- Contra Funds: Investment following a contrarian investment approach; minimum of the total assets - 65%
- Focused Funds: Investment focused on the number of stocks; minimum of the total assets - 65%
- Sectoral/Thematic Funds: Investment in equity and equity-related instruments of a designated sector or theme; minimum of the total assets - 80%
- ELSS Funds: Investment in Equity Linked Saving Schemes; minimum of the total assets - 80%
Debt Schemes: The funds are invested in debt securities, like bonds. They provide regular income through interest payouts. The risk is lower compared to equity schemes. Debt schemes are further classified into:
- Overnight Funds: Investment in one-day maturity overnight securities
- Liquid Funds: Investment in money and debt market securities with a maturity of up to 91 days
- Ultra Short Duration Funds: Investment in money and debt market instruments with a 3-6 month-long Macaulay duration.
- Low Duration Funds: Investment in money and debt market instruments with a Macaulay duration of 6-12 months.
- Money Market Funds: Investment in money market instruments with a maturity of up to one year.
- Short Duration Funds: Investment in debt and money market instruments with a Macaulay duration of 1 to 3 years.
- Medium Duration Funds: Investment in debt and money market instruments with a Macaulay duration of 3 to 4 years
- Medium to Long Duration Funds: Investment in debt and money market securities with a Macaulay duration of between 4 and 7 years.
- Long Duration Funds: Investment in debt and money market securities with a Macaulay duration of over 7 years
- Dynamic Bond Funds: Investment in various durations depending on the movement in interest rates
- Corporate Bond Funds: Investment in the highest-ranked corporate debt fund; minimum of the total assets - 80%
- Credit Risk Funds: Investment in corporate debt with lower credit ratings; minimum of the total assets - 65%
- Banking and PSU Funds: Investment in bank debt securities, public sector undertakings, and public financial institutions; minimum of the total assets - 80%
- Gilt Funds: Investment in government securities of varying maturities; minimum of the total assets - 80%
- Gilt Fund with 10-Year Constant Duration: Investment in government securities with a 10-year maturity period; minimum of the total assets - 80%
- Floater Funds: Investment in instruments with a floating interest rate; minimum of the total assets - 80%
Hybrid Schemes: Hybrid funds invest in both equities and fixed-income securities, balancing the overall return and risk via diversification across different asset classes. There are different types of hybrid schemes:
- Hybrid Schemes: Hybrid funds invest in both equities and fixed-income securities, balancing the overall return and risk via diversification across different asset classes. There are different types of hybrid schemes:
- Balanced Hybrid Funds: 40-60% investment in equity and equity-related securities and 40-60% in debt securities, without arbitrage.
- Aggressive Hybrid Funds: 65-80% investment in equity and equity-related securities and 20-35% in debt securities
- Dynamic Asset Allocation Funds (Balanced Advantage): Investments dynamically switch between equity and debt depending on market conditions
- Multi-Asset Allocation Funds: Investment in three or more asset classes; minimum of the total assets - 10% in each
- Arbitrage Funds: Investment arbitrage opportunities; minimum of the total assets - 65%
- Equity Savings: Minimum of 65% investments in equity and equity-related products and 10% in debt, considering the hedging factor

Based on Investment Goals

Different types of mutual funds can help with specific investment goals, and based on the same, the funds are categorised into:

Growth Funds: Focused on achieving high returns by investing in equity and capital appreciation in the long run
Income Funds: Aim to provide stable income by investing in debt and fixed-income securities
Liquid Funds: Offers high liquidity by investing in short-term debt securities
Tax-Saving Funds (ELSS): Offers tax benefits

Solution-Oriented Schemes

These funds are centred around specific investment goals, such as:

Retirement Fund: Investments made towards creating retirement funds and generating regular income
Children’s Fund: Investments as part of long-term financial planning for children’s education, marriage, and overall welfare

Other Schemes

There are two more types of mutual funds available in the market:

Exchange Traded Funds (ETFs): Track and replicate any particular index; 95% of total assets to be invested in securities of a specific index
Fund of Funds (FoFs): Investments made in other mutual funds

Fund of Funds (FoFs): Investments made in other mutual funds

Discover the best mutual funds for you and invest with ease from Indiabulls Securities. From the latest market news to performance tracking tools, you will get several resources at your disposal to optimise your mutual fund investments. Create an Indiabulls Securities account today and invest in all sectors and asset classes without any hassle.