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All You Need to Know About Different Types of Mutual Funds

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We all know investing in mutual funds can be advantageous for us. It is naturally evident with all the recent mutual fund campaigns and the increasing awareness about benefits of early investment. However, there are different types of mutual funds available in the market. And at times, it can become confusing to understand their investment objectives and how can they fit in your investment portfolio.

However, you need not worry about it much, as we have got you covered on that point. Here’s a quick guide about all the different types of mutual funds.

Recently SEBI launched a new categorization of mutual fund to help investors understand the different types of mutual fund schemes and invest accordingly.

As per the new categorization the mutual fund schemes can be divided into five categories:

  1. Equity Funds
  2. Debt Funds
  3. Hybrid Funds
  4. Solution Oriented Funds
  5. Other Funds

Let us now look at each of these fund types in brief:

  1. Equity Funds:
    As the name suggests, equity funds invests money in equity and equity related instruments. This is the reason why equity funds trade in stock market. Their primary objective is to gain capital appreciation by investing in equity related securities. Due to their investment nature, these funds come with a high risk. However, they generate better returns than rest of types of mutual funds. There are further 10 sub-categories or different types of equity mutual funds. They are:
  2. Large-cap funds
  3. Mid-cap funds
  4. Small-cap funds
  5. Multi-cap funds
  6. Large & Mid-cap funds
  7. Value fund
  8. Dividend yield fund
  9. Focused fund
  10. Sectoral or Thematic funds
  11. Equity linked savings scheme or ELSS
  12. Debt Funds: These funds invest money in debt related instruments such as government bonds, debentures, corporate bonds & papers, and other fixed income assets. These investments involve lower risk and experience less market fluctuations. There are 16 sub-categories of debt fund, as per the new SEBI regulation:
  13. Money market fund
  14. Liquid fund
  15. Low duration fund
  16. Overnight fund
  17. Long duration fund
  18. Medium duration fund
  19. Medium to long duration fund
  20. Short duration fund
  21. Ultra-short duration fund
  22. Dynamic bond fund
  23. Corporate bond fund
  24. Gilt fund
  25. Banking & PSU fund
  26. Floater fund
  27. Gilt fund with 10 year constant duration
  28. Credit risk fund
  29. Hybrid Funds: Hybrid fund is another important type of mutual fund. Hybrid fund is a combination of equity and debt fund. It is further divided into 6 sub-types:
  30. Aggressive hybrid fund
  31. Conservative hybrid fund
  32. Balanced hybrid fund
  33. Balanced advantage fund
  34. Arbitrage fund
  35. Equity savings fund
  36. Multi-asset allocation fund
  37. Solution oriented funds: These funds cater to a specific objective right from the start and have a lock-in period of minimum five years. There are 2 sub-types:
  38. Children’s fund
  39. Retirement fund
  40. Other Funds: All the different types of mutual funds that are not covered in the above 4 categories can be put into this category. There are 2 sub-categories:
  41. Fund of funds
  42. Index funds

All the above-mentioned types of mutual funds cater to the need of reaching your financial goals. Investing in each type of mutual funds comes with different set of risks and advantages.

We hope that this small brief about different types of mutual funds will help you in choosing the right mutual fund for your investment.

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