Types of Mutual Funds in India: A Comprehensive Overview

Explore the diverse landscape of mutual funds in India through our comprehensive overview of various types. Make informed decisions as you delve into the nuances of mutual fund diversity and tailor your investment strategy for maximum potential.

4 mins
31 August 2023

Mutual funds have emerged as a popular investment avenue for both seasoned investors and newcomers alike. In India, the mutual fund landscape is diverse, offering a wide array of options catering to different investment goals, risk tolerances, and preferences. Understanding the various types of mutual funds is crucial for making informed investment decisions. Let's delve into the world of mutual funds in India, exploring the multitude of options available to investors.

Based on Risk

  • High-Risk Funds: High-risk funds, such as sector funds and aggressive growth funds, pursue higher returns by investing in more volatile assets/ asset classes/ sectors, like specific industry/sectors or growth-oriented equities.
  • Medium-Risk Funds: These funds strike a balance between risk and return by investing in a mix of equities and debt securities.
  • Low-Risk Funds: Low-risk funds invest in relatively stable assets such as high-quality corporate bonds and conservative equities.
  • Very Low-Risk Funds: These funds prioritize capital preservation and invest in highly stable instruments like government securities and money market instruments.

Based on Asset Class

  • Equity Funds: These funds primarily invest in stocks or equities. They are known for their potential to deliver substantial returns over the long term, but they also come with higher risk due to the volatility of the stock market.
  • Debt Funds: Debt funds invest in fixed-income securities like government bonds, corporate bonds, and other debt instruments. They are considered less risky compared to equity funds and provide regular income through interest payments.
  • Hybrid Funds: Also known as balanced funds, these invest in a mix of both equities and fixed-income securities. They aim to balance risk and return by diversifying across asset classes.

Based on Investment Goals

  • Growth Funds: These funds focus on capital appreciation over the long term. They invest primarily in equities with the aim of achieving high returns.
  • Income Funds: Income funds aim to generate a steady stream of income for investors by investing in bonds, certificate of deposits, and securities amount other investment avenues.
  • Liquid Funds: Liquid funds invest in very short-term debt instruments and provide high liquidity. They are ideal for parking surplus funds for a short period while earning some interest.
  • Tax-Saving Funds: Also known as Equity-Linked Savings Schemes (ELSS), these funds offer tax benefits under Section 80C of the Income Tax Act. They primarily invest in equities.
  • Aggressive Growth Funds: These funds adopt a high-risk, high-reward approach by investing in growth-oriented equities with the potential for substantial returns.
  • Capital Protection oriented Funds: These funds aim to protect the initial investment while providing some opportunity for growth by investing in a mix of equities and debt securities.
  • Fixed Maturity Funds: These debt funds have a fixed maturity date, ranging from one month to five years, and they invest in debt instruments with a similar maturity profile.
  • Pension Funds: Pension funds are designed for long-term retirement planning, investing in a diversified portfolio that balances risk and return.