Understanding Mutual Funds: What are the different types of MFs available for investment in India?

Mutual funds pool money from investors to buy securities like stocks and bonds. Based on their investment objectives, they are managed by professionals and categorised into equity funds, debt funds, liquid funds, and hybrid funds.

First Published20 May 2024
Mutual funds are broadly categorised into five main types based on their underlying assets and investment objectives:
Mutual funds are broadly categorised into five main types based on their underlying assets and investment objectives:(iStock)

Mutual funds (MFs) are investment vehicles that pool money from multiple investors to purchase securities such as bonds, stocks, or a combination of both. Professional fund managers manage MFs. Mutual funds are broadly categorised into five main types based on their underlying assets and investment objectives.

Equity Mutual Funds

These funds primarily invest in company stocks or equities. They are further classified based on market capitalisation (large-cap, mid-cap, small-cap).

  • Large-cap mutual funds invest in companies with market capitalisations exceeding 10,000 crore. Investors often perceive these funds as safer investments than others in the market.
  • Mid-cap mutual funds direct their investments towards mid-sized companies within India. While offering slightly higher returns than large-cap funds, mid-cap funds are known for their dynamic performance.
  • Small-cap mutual funds specialise in investing in companies with smaller market capitalisations, typically below 5,000 crore. 

Debt Mutual Funds

Debt funds invest primarily in fixed-income securities such as government or corporate bonds. These funds aim to provide regular income with lower risk. 

Some common types of debt funds include 

  • Ultra-Short-Duration Funds
  • Short-Duration Funds
  • Medium-Duration Funds
  • Long-Duration Funds 
  • Gilt Funds

Also Read: Best Mutual Funds to invest in 2024

Liquid Funds

Liquid funds suit investors looking for short-term investment options with high liquidity and low risk. Liquid funds offer quick and easy access to funds.

Also Read: What are mutual funds (MFs)? An investment guide for beginners

Hybrid Mutual Funds

Hybrid or balanced funds invest in a mix of equities and debt instruments. The allocation between equity and debt varies based on the fund's investment objective.

Here are some common types of hybrid mutual funds.

  • Conservative Hybrid Funds: These funds typically allocate a higher percentage of their assets to fixed-income securities, such as bonds and debt instruments.
  • Aggressive Hybrid Funds: Aggressive hybrid funds, also known as balanced funds, allocate more assets to equities than conservative hybrid funds.
  • Balanced Advantage Funds: Balanced advantage funds dynamically adjust their allocation between equities and fixed-income securities based on market valuations and economic conditions.

Equity Linked Savings Scheme (ELSS)

ELSS funds are an equity mutual fund with a specific tax-saving feature under Section 80C of the Income Tax Act in India. These funds primarily invest in equity and equity-related instruments and have a lock-in period of three years. 

Some common types of ELSS funds

  • Diversified ELSS Funds: These funds invest across various sectors and market capitalisations.
  • Large-cap ELSS Funds: These primarily invest in stocks of large-cap companies.
  • Mid-cap ELSS Funds: These funds focus on investing in stocks of mid-sized companies with high growth potential.
  • Small-cap ELSS Funds: The fund invests in stocks of small-sized companies with significant growth potential. 
  • Sector-specific ELSS Funds: Some ELSS funds focus on specific sectors or themes, such as technology, healthcare, or infrastructure.

Note: This story is for informational purposes only. Please speak to a SEBI-registered investment advisor before making any investment-related decision.

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