There is a huge range of Mutual Funds in India. These are usually characterized on the basis of investment objectives, asset class, and structure.

Types of Mutual Funds based on Asset Class

Equity Funds
These funds are invested in stocks or shares of a company. There is a higher risk associated with these funds since these funds tend to grow faster than money market or fixed income funds. Investors can invest in growth stocks, income funds, value stocks, large-cap stocks, mid- cap stocks, small-cap stocks or even a combination of these as per their requirements.

Debt Funds

These funds invest in debt. There are various options for investors to invest in this type of funds such as government bonds, company debentures, fixed income assets and more. These type of funds are considered as safe instruments for investment purposes as they offer fixed and gradual returns to the investors.

Money Market Funds

These funds are invested in short-term fixed income securities such as government bonds, treasury bills, bankers’ acceptances, commercial paper, and certificates of deposit. Money market funds are usually a safer option as immediate returns are offered, however, they provide lower returns when compared to other types of mutual funds.

Balanced Funds

These funds invest in a mix or combination of equities and fixed income securities. These funds usually tend to balance the goal of getting higher returns with the minimum risk associated with them. There is a formula related to splitting up the money in various investments. The risk associated with these type of funds is less than pure equity funds but more than fixed income funds. Aggressive funds constitute more equities and fewer bonds, whereas conservative funds are those which have fewer equities relative to bonds.

Index Funds

These funds are investment instruments that track the performance of a specific index such as the S&P/TSX Composite Index. The value of the mutual fund moves up and down as the index goes up or down. The portfolio manager does not require to do research or make as many investment decisions and hence index funds have lower costs.

Funds of funds

These funds invest in other funds. These funds aim in making an allocation of assets and diversification easier for the investors, as the balance funds do. The MER for fund-of-funds is expected to be higher than stand-alone mutual funds.

Types of Mutual Funds based on Structure

Open-ended funds

Open-ended funds are investment instruments that deal with units that are bought or redeemed throughout the year. The purchases and redemption are based on Net Asset Value (NAV). Investors tend to choose these type of funds since they offer higher liquidity.

Close-ended funds

These are mutual fund investments instruments that trade in units which are bought during the initial period only. The units are usually redeemed on a particular maturity date.

Types of Mutual Funds based on Investment Objectives

Growth Funds

Through these schemes, investors can invest in equity stocks. These funds aim to provide capital appreciation. However, the risk affiliated with these funds is higher, these funds can be a viable option for investors looking for long term investments timelines.

Fixed Income Funds

These funds are invested in investments that provide a fixed rate of return such as government bonds, investment-grade corporate bonds, and high-yield corporate bonds. Money is bound to enter into funds regularly in the form of interests. High-yield corporate bond funds are generally riskier than funds that hold government and investment- grade bonds.

Liquid Funds

In liquid funds, money is usually invested in short term investment instruments or sometimes very short term investment instruments, in order to get a hand on liquidity. The instruments can be CPs, T-Bills and more. These funds pertain to lower risk factor with a moderate rate of returns. These funds are viable for investors having short term investment timelines.