Understanding Types of Mutual Funds

Types of Mutual Funds Schemes in India

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There are various methods and ways to classify mutual fund schemes. These can either be open ended schemes or close ended schemes.

What is the difference between an open-ended and close-ended mutual fundsWhat is Open Ended Fund or Scheme?

An open ended fund or scheme means that it’s open for business on all business days you can invest or withdraw your money on all business days. The most important factor in an open ended scheme is LIQUIDITY.

What is Close Ended Fund or Scheme?

Contrary to the open ended scheme, a close ended have a specific maturity period. Close ended funds are not open on all business days but only during the initial launch and in order to redeem at specified periods of time. This will either be done post- launch or later depending on when the AMC specifies. The specified maturity period may last for three months, six months or a year or more.

The segregation of the various types of mutual fund schemes can be done according to the objective of investment. Some schemes may be open ended, some maybe close ended.

The different Types of Mutual Funds are listed below;

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Types of Mutual Funds in India 1] Equity Funds

The main objective of a growth fund is providing necessary capital over a period of time. Equity funds are the ones that invest in equity shares of companies, giving the scope of growth for its investors. These funds are especially for investors who have a long term outlook seeking capital appreciation over a time period.

2] Index Funds

The aim of index funds is to replicate the portfolio of a particular market index like the Bombay Stock Exchange Sensex, S&P Nifty etc. Net Asset Value of such a scheme would increase or decrease with the rise or fall in the index by the same percentage due to factor technically known as tracking era. This makes tracking of your investments easy to understand. The mutual fund offer documents contain necessary disclosures in this regard.

3] Balanced Funds

These funds look into providing the benefit of investing not only in equities but also in debt securities for the promotion indicated in their offer documents. Investors who look for growth without taking too much risk should choose this type of fund. Balanced funds are also affected due to the ups and downs in stock markets but these are less volatile compared to pure equity fund.

4] Income or Bond Funds

Income funds are the funds that invest in dead securities. Dead securities include bonds, corporate debentures, government securities and money market instruments. These funds are not affected by the fluctuations in the equity markets and hence are less risky in nature compared to equity schemes. These funds are suitable for individuals who seek a low-risk investment as the opportunities of capital appreciation are limited.

5] Money Market or Liquid Funds

These funds are also income funds but they invest exclusively in short term instruments like the treasury bills, certificate of deposit, commercial paper and CBLP, government securities, etc. These schemes focus on providing easy liquidity preservation of capital and moderate income. The fluctuations are less compared to other schemes. Money market schemes provide returns for a short period of time and therefore are suitable for corporate and individual investors.

6] Gilt Funds

Gilt funds are the funds that invest specifically in government securities. NAV of these schemes change in interest rates and other economic factors just like income or debt oriented schemes. These have no default risk.

Before investing into any kind of mutual fund, you should remember that; Mutual fund investments are a subject to market risk. Read the offered scheme related documents and information carefully before investing.

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