Types of mutual funds

What are the types of mutual funds?

There are many types of mutual funds available for investors.

Here is how they can be broadly classified:

1. Based on the fund’s structure

Mutual funds can be either

Open-ended: you can invest and withdraw your money anytime.
Closed-ended: you can only invest and withdraw money at a pre-specified time.

2. Based on how they are managed

Based on management, mutual funds can be divided into:

Active funds: the fund manager has all the power to choose companies to invest in and change them from time to time.
Passive funds: like in the case of index mutual funds, the fund manager simply follows the performance of indices like Nifty and SENSEX.

3. Based on the assets being invested into

This is the most common type of classification of mutual funds.

In terms of assets they are investing in, mutual funds can be divided into

Equity mutual funds (investing in shares)
Debt mutual funds (bonds)
Gold funds (investing in gold)
Hybrid (investing together in shares and bonds).

How many types of mutual funds exist?

Equity mutual funds (10 types)
Debt mutual funds (16 types)
Hybrid mutual funds (6 types)
Solution-Oriented Funds (2 types)
Other Schemes (2 types)

We have already discussed equity mutual funds and debt mutual funds in the earlier sections.

Hybrid funds

Hybrid funds, as the name says, are a mix of equity and debt investments.

By investing in this fund, you can get

the stability of debt investments and
higher return opportunities offered by equities

Examples of these funds are balanced advantage funds and arbitrage funds.

Solution-Oriented Funds

Mutual funds offer specific funds to invest money for your children’s future. Such specialised funds are called solution-oriented funds.

Other schemes

Other schemes include Index funds, which give you the same returns as the index, exchange-traded funds etc.

These types of mutual funds are offered by different brands like Axis mutual funds, DSP mutual funds, SBI mutual funds, Canara Robeco mutual funds, Kotak mutual funds etc.

How to select a Mutual Fund?

Keep reading to find out how to select a mutual fund that suits your goals.

Returns

Just like you select a bank giving you better returns on your savings, you can choose a mutual fund company (AMC) that can give you better returns.
Experience of Fund Manager

Another aspect you can look at is the fund manager’s experience. This is because the decision of what stocks to invest in or what other assets to choose depends on the fund manager.
Fees charged

Every AMC charges different fees to manage funds. This fee is also different for different mutual funds. The fee to manage the fund is deducted from your returns. This is called the Total Expense Ratio (TER). Therefore, it is better to look at the TER of a fund and similar funds from other AMCs before deciding.

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