What is an Asset Class in Mutual Funds?

What is an Asset Class in Mutual Funds?

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A Mutual Fund is an investment tool that allows you to invest and earn returns. An Asset class in a Mutual Fund is a set of various assets with similar characteristics and responses to market fluctuations. They have to obey the same laws and regulations. Each asset class performs differently, faces different risk and acquire different returns in any given market environment. It aims to diversify the portfolio and avoid being affected by market volatility. 

Here are different types of Mutual Funds based on Asset Class. 

Equity Funds 

An Equity Fund is also known as a Growth Fund, a Mutual Fund Scheme through which you can predominantly invest in shares/stocks. This type of fund can be either active or passive. A professional fund manager carries out different kinds of activities in an Active Fund. These are— Market research, companies research, performance examination, and the best stocks selection. 

The professional fund manager creates a portfolio that focuses on Sensex or Nifty Fifty in a Passive Fund. 

Different types of Equity funds are

  • Large Cap Fund
  • Large & Mid Cap Fund
  • Value Fund
  • Contra Fund
  • Focused Fund
  • Sectoral/Thematic Fund
  • ELSS
  • Mid Cap Fund
  • Small Cap Fund
  • Multi-Cap Fund
  • Dividend Yield Fund

Debt Funds 

A debt fund is a Mutual Fund scheme that allows you to invest in  Corporate and Government Bonds, corporate debt securities, money market instruments, etc. that are called fixed income instruments. This type of fund is known as a Fixed Income Fund or Bond Fund. Some of the major benefits you can avail of in debt funds are cost-effective structure, Comparatively stable returns, Comparatively high liquidity, and Reasonable safe investment. 

Different types of debt funds are

  • Ultra Short Duration Fund
  • Dynamic Fund
  • Corporate Bond Fund
  • Credit Risk Fund
  • Banking and PSU Fund
  • Overnight Fund
  • Liquid Fund
  • Gilt Fund
  • Gilt Fund with 10-year constant duration
  • Floater Fund
  • Low Duration Fund
  • Money Market Fund
  • Short Duration Fund
  • Medium Duration Fund
  • Medium to Long Duration Fund
  • Long Duration Fund

Hybrid Funds 

A Hybrid fund combines an Equity fund and a Debt fund. There can be more Equity (60% ) funds than Debt funds (40%). In contrast, there can be more Debt funds (60%) than Equity funds (40%). It is popularly known as a Balanced fund. 

Different types of hybrid funds are

  • Conservative Hybrid Fund
  • Balanced Hybrid Fund
  • Multi-Asset Allocation
  • Arbitrage Fund
  • Equity Savings
  • Aggressive Hybrid Fund
  • Dynamic Asset Allocation or Balanced Advantage

Money Market Funds

A money market fund is a mutual fund that allows you to invest in high-quality and short-term debt. It aims to shield capital when it gets a nominal yield. Companies and institutions use money market funds to maintain their short-term cash needs.

  • Certificate of Deposit (CD)
  • Treasury Bills (T-bills)
  • Repurchase Agreements (Repos)
  • Commercial Paper (CPs)

The Final Thought 

The concept of mutual funds is broad and includes various types of mutual fund schemes as per financial goals. An asset class is a type of mutual fund category that makes different returns and responds similarly to the market conditions. 

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