How many kinds of mutual funds are there?
Mutual Funds in English:
In the previous article, we explained that a mutual fund means investing money together as a group.
You might be surprised to know that there are many different types of mutual funds.
Because of this variety, it can be confusing to choose the right mutual fund for yourself.
Because there are so many types of mutual funds, it can be hard for investors to decide which one to choose.
That’s why it’s important to learn about the different types of mutual funds first.
Only then can you pick the right mutual fund for yourself.
Now that you know what mutual funds are, you might also want to know about their different types.
So, next we will give you complete and clear information about how many types of mutual funds there are.
Categories of mutual funds
There are many types of mutual funds, and they are divided into different categories.
Because of so many options, it can be confusing to choose the right one.
So now, let’s discuss the different types of mutual funds.
Mutual funds are mostly divided into two categories.
Types of Mutual Funds by What They Invest In (Asset Class)
Types of Mutual Funds by How They Are Set Up (Structure)
Now let’s understand each of these clearly.
Mutual Funds Based on Asset Class
These mutual funds invest in one or more types of assets, like stocks, bonds, or gold.
They are divided into different categories based on where the money is invested.
Debt Fund-
A Debt Fund gives you a fixed return. In this, the company or government borrows money from investors and gives them fixed interest in return.
Debt funds are divided into three types:
Gilt Fund –
Money is invested in government bonds. These are very safe and have almost no risk.
Junk Bond Fund –
Money is invested in corporate bonds (from companies). These have higher risk, but they also give higher returns than Gilt Funds.
Fixed Security Fund –
In this, money is invested for a fixed time like 3 to 5 years. It gives good returns after the period ends.
Liquid Fund
A Liquid Fund is a type of fund where you can take out your money anytime, and it gets transferred to your bank account within 24 hours.
You can invest in it for as little as 3 days, and its full maturity period is 91 days.
Equity Fund
An Equity Fund is the most popular type of mutual fund. People invest in it to earn higher returns, but it also comes with higher risk.
In this fund, the money is invested in the stock market by a professional called a fund manager. Equity funds are further divided into different types:
1. Large Cap Fund
Money is invested in big and well-known companies.
Returns are lower but steady, and this fund is good for people who don’t want to take much risk.
2. Mid Cap Fund
Money is invested in medium-sized companies that are growing and expanding.
Returns are higher than large cap, but risk is also a bit more mid cap fund.
3. Small Cap Fund
This fund invests in new and small companies trying to grow their business.
It can give very high returns, but the risk is also high.
4. Multi Cap Fund
“Multi” means many. This fund invests in all three types — large, mid, and small companies.
It helps balance risk and return.
5. Flexi Cap Fund
This fund is similar to Multi Cap, but the fund manager has full freedom to choose where to invest — in large, mid, or small cap companies.
About 65% of the money goes into equity or equity-related investments.
Types of Equity Mutual Funds (in Simple Words):
Small Cap Fund –
Invests in new and small companies with growth potential. High return, high risk.
Mid Cap Fund –
Invests in medium-sized growing companies. Better returns than large cap, with moderate risk in mid cap fund.
Large Cap Fund –
Invests in big, stable companies. Low risk, steady returns.
Sector Fund –
Invests in one specific industry or sector, like banking, IT, or healthcare. Returns depend on how that sector performs.
Diversified Equity Fund –
Invests in companies from different sectors and sizes, reducing risk by spreading investments.
Dividend Yield Scheme –
Invests in companies that pay regular dividends. Good for those who want steady income.
Equity Linked Saving Scheme (ELSS) –
A type of equity fund that offers tax benefits under section 80C in constitution. Has a lock-in period of 3 years.
Thematic Fund –
Invests based on a theme or idea, like digital India, clean energy, etc. Similar to sector funds but based on broader concepts.
ELSS Mutual Fund
ELSS is a type of equity mutual fund. In this, your money stays locked for 3 years — you can’t withdraw it before that.
The main benefit of ELSS is that you get income tax exemption up to ₹1.5 lakh under Section 80C in constitution.
Because of this tax benefit, ELSS has become very popular among people.
Thematic Fund
In this type of fund, money is invested based on a specific theme or idea, like companies related to paint, housing, or technology.
Hybrid Fund
This fund invests in both equity (stocks) and debt (bonds). Its main goal is to give regular income to investors. It carries more risk than a debt fund, but less than an equity fund. Hybrid funds have different types:
Equity-Oriented Hybrid Fund – About 65% is invested in equity (stocks) and 35% in debt. This type has higher risk.
Debt-Oriented Hybrid Fund – Around 60% goes into debt and the rest into equity. This is less risky but also gives lower returns.
Balanced Hybrid Fund – Money is invested in both equity and debt, so the risk is moderate.
Monthly Income Fund – Up to 90% of money goes into debt, which helps give steady returns.
Arbitrage Fund – This fund buys stocks in one market and sells them in another to make a profit from the price difference.
Want to invest in Mutual Funds?
If you’re planning to invest in mutual funds, you can open an account with a discount broker like Groww. It’s quick and easy to start. You can open your Mutual Fund account online and begin investing. (Link provided below)
Mutual Funds Based on Structure-
Let’s now understand the different types of mutual funds based on how they are structured:
1. Open-Ended Scheme
In this type of mutual fund, you can buy or sell units anytime. The company keeps issuing new units whenever investors want to invest.
2. Close-Ended Scheme
These funds are available for a limited time only. Once you invest, you cannot buy or sell the fund until the fixed time period ends.
3. Index Fund
In an index fund, your money is invested in stock market indexes like Nifty or Nifty Bank.
These funds include stocks listed in the Sensex or Nifty, so the risk of loss or high profit is low.
It’s best to invest in these when the index is at a lower level.
4. Sector Fund
In this fund, money is invested in companies of a particular sector like FMCG or IT.
It works like an index fund, but focuses on top-performing stocks within one sector.
What Did You Learn Today?
I hope this article helped you understand the different types of mutual funds, especially equity funds.
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