Types of Mutual Funds in India

Posted by Shiva
December 13, 2011

Mutual Funds have come a long way since its launch in India in 1963 by UTI.  And with the entry of private players in mutual funds in 1993, it has surely witnessed a great turnaround in India with over 50+ of AMCs managing various mutual fund schemes in India.  The first mutual fund in India was launched by Unit Trust of India or (UTI Mutual Fund).

 

As many are having the wrong notion that mutual funds only invests in equities which was not the case as we are going to find out that Mutual Funds in India apart from investing in equities also invests in other avenues like bonds, debt, gold and other options.  There are around 16 types of mutual funds available in India offered by various AMCs.  You can find the same below:

 

Types of Mutual Funds

 

Now we will look into each of the above mentioned type of funds in brief on what they are and how they invest.

 

Thematic Equity Funds

The Thematic Funds as the name suggests invests primarily only in a selected theme of companies in equity market, for example infrastructure mutual fund invests only in infrastructure related companies and similarly there are other thematic funds like banking funds, FMCG funds, pharma funds, etc. These funds are high risk and high return funds.

 

Diversified Equity Funds

These type of mutual funds invests across the board and companies in the equity market according to the asset allocation as specified.  It invests primarily in large cap, mid cap and small cap funds.

 

Small and Mid Cap Funds

These are the funds which invests mostly in the mid and small cap companies and hence it is ideal for the risk averse investors and not recommended for those who are new to MF in general.

 

Equity link savings schemes (ELSS) Funds

This is the tax saving mutual fund which helps you save on income tax under section 80C and there is a minimum lock in period of 3 years for this fund.  And also this fund will cease effective April 2012 as the new DTC comes into force which have cancelled the tax saving option for such schemes.

 

Large cap equity funds

As the name suggests this type of fund invests only the top of the crop or top 100 funds or follows either the SENSEX or NIFTY index and invests in the companies which have huge market capitalization for example like Infosys, TCS, SBI, etc.  Hence it is one of the better mutual fund type when it comes to equities fund.

 

Exchange traded funds (ETF)

These are the funds which can be brought and sold only via the stock exchange just as the name suggests.  For example we have the gold exchange traded funds, which invests in bullion in India, also there are other ETFs like NIFTY ETF, Bank ETF, Junior NIFTY, etc.  These Exchange traded funds only invests in their respective index funds or gold.

 

Index funds

These types of funds follow certain index and replicates the same when it comes to investment and hence the returns also will be almost similar to what that index offers.  For example there are index funds which follows either BSE SENSEX or S&P CNX Nifty and invests on those companies that falls in this index and the percentage of investment also will be replicated exactly according to the index that it follows.

 

Balanced funds

Such type of fund primarily invests a certain percentage of their portfolio in both equities as well as in debt, mostly it will be 50/50 but it may vary according to the specific fund’s allocation.  This is also ideal for those looking to enter the equities market via mutual funds as the risk involved in this fund is minimal compared to the large, mid and thematic funds.

 

Monthly income plans (MIP)

These monthly income plans are just like the post office offered MIPs but the only difference is that these mutual fund offered MIPs don’t actually guarantee you monthly returns as the name suggests but only offer you returns at a regular time.  These types of funds mostly invest in debt market but a certain percentage also in equities for better returns.

 

Fixed Maturity Plans (FMPs)

The Fixed Maturity Plans or FMPs as they are popularly known as are the closed ended funds which invests only in the secured bonds, debt and money market instruments over a period of time and gives you a return that follows these instruments.  This is the most widely brought funds right next to the regular equity funds offered by various mutual fund companies.

 

Capital protection funds

These are the latest armor that these MF companies have come up with which works just like the MIPs but the only difference being that it is closed ended and helps you on capital gains via investing in debt market while investing a certain portion (around mostly 30%) in equities for better returns and while the balance 70% of debt market investments helps protect your capital.  Although they don’t guarantee any fixed returns.

 

Long term income funds, Gilt funds, short term funds, ultra short term debt funds only invests in the more safer instruments like debt, government bonds, money market instruments and hence the returns too follows them.  The risk involved in such funds are very minimal.

 

Liquid Funds

These liquid funds are just like bank savings account which are best suited for the HNIs and others who want to invest for short term but yet get a better returns than what banks offer in the savings bank accounts.  Such funds have prompted mutual funds to even offer Mutual Fund  ATM Card.

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Comments

Must say, a very well researched and well written article on various types of Mutual Fund schemes. Very useful for investors who are in a dilemma as to which will be the best investment option that suits their investment needs. Keep up the good work, All the best!

Comment by Roshni Bhatia on February 5, 2012 @ 1:06 am
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