What are Mutual Funds? Types of Mutual Funds

What are Mutual Funds? Types of Mutual Funds

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What are Mutual Funds? 

A Mutual Fund is an investment tool that allows investors to invest and earn returns over a period. There are various types of mutual funds to choose from as per your financial goal. In any mutual fund scheme, you have to deposit a fixed amount of money regularly, be it weekly, monthly, quarterly, or yearly, that must be predetermined. When you invest a fixed amount of money every time, you will get the corresponding units for that investment. 

A professional fund manager or Asset Management Company (AMC) will raise funds from many investors with common interest through a particular mutual fund scheme. They will invest that collected money into equities, bonds, money market instruments, and other securities. At the maturity period of the investment, the fund manager will proportionately distribute generated profits amongst investors, but after the deduction of certain expenses. 

Different Types of Mutual Funds

Mutual Funds are categorized based on Asset Class, Investment Goals, Structural Classification, Specialization, and Risk Appetite. 

Asset Class

An asset class in a Mutual Fund is a group of different securities with similar characteristics and responses to market fluctuations. They follow the same laws and regulations. 

  • Equity Funds (Large Cap Fund, Large & Mid Cap Fund, Mid Cap Fund, Small Cap Fund, Multi-Cap Fund, Dividend Yield Fund, Value Fund, Contra Fund, Focused Fund, Sectoral/Thematic Fund, and ELSS)
  • Debt Funds (Overnight Fund, Liquid Fund, Ultra Short Duration Fund, Low Duration Fund, Money Market Fund, Short Duration Fund, Medium Duration Fund, Medium to Long Duration Fund, Long Duration Fund, Dynamic Fund, Corporate Bond Fund, Credit Risk Fund, Banking and PSU Fund, Gilt Fund, Gilt Fund with 10-year constant duration, and Floater Fund)
  • Hybrid Funds (Conservative Hybrid Fund, Balanced Hybrid Fund, Aggressive Hybrid Fund, Dynamic Asset Allocation or Balanced Advantage, Multi-Asset Allocation, Arbitrage Fund, and Equity Savings)
  • Money Market Funds

Structural Classification

Mutual funds based on Structure are quite different from Mutual funds based on Asset class. It has the flexibility to trade individual mutual fund units. 

  • Open-Ended Funds
  • Closed-Ended Funds
  • Interval Funds

Investment Goals

The concept of Mutual funds is broad, covering various mutual fund schemes for investors and traders with unique financial goals. 

  • Tax-saving Funds
  • Aggressive Growth Funds
  • Capital Protection Funds
  • Growth Funds
  • Income Funds
  • Liquid Funds
  • Pension Funds
  • Fixed Maturity Funds

Specialized Mutual Funds

Specialized mutual funds are based on particular industries that involve commodities or other sections in the market.

  • Sector Funds
  • Index Funds
  • International/ Foreign Funds
  • Funds of Funds
  • Exchange-traded Funds
  • Emerging market Funds
  • Global Funds
  • Commodity-focused Stock Funds
  • Real Estate Funds
  • Asset Allocation Funds
  • Market Neutral Funds
  • Inverse/Leveraged Funds
  • Gift Funds

Risk 

Risk appetite is the willingness and ability of investors and traders to go through the loss of their investments. When an investor knows about the risk associated with the investment, they will prepare in advance for that risk. The investment with lower risks generates lower returns. 

  • Very Low-Risk Funds
  • Low-Risk Funds
  • Medium-Risk Funds
  • High-Risk Funds

The Conclusion

A mutual fund is a practical investment tool that collects money from various shareholders and gives corresponding units to generate significant profits for every investor. There are various mutual fund schemes to choose from and invest in as per your financial goal. 

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