Types of Mutual Funds
There are numerous schemes offered by the mutual fund companies in order to attract the investors and also help them in fulfilling their various objectives. The mutual fund invests in a wide range of securities keeping in mind the preferences, goals and needs of all the investors. The schemes can be classified in a following manner :-
There are three types of mutual funds on the basis of structure. These are open-ended funds, close-ended funds and interval funds.
These types of funds allow an investor to make entry or exit at any point of time i.e. available for subscription throughout the year. There is no maturity period for these schemes. Investors can buy or sell units of the mutual fund at net asset value (NAV) directly from the mutual fund. The price is determined by the mutual fund company itself.
The investor can invest in this mutual fund only during the initial launch period known as the IPO period i.e. available for subscription during a specific period only. The investor can sell out its units in the secondary market or at the maturity period. These funds have a stipulated maturity period. The price is determined by the forces of demand and supply in the market.
These are hybrid funds. They combine the features of both open-ended funds and the close-ended funds. These schemes are opened for purchase or redemption for a specific period of time at NAV related prices.
2. INVESTMENT OBJECTIVE SCHEMES
It includes the schemes divided on the basis of the objective of the investors. They are also divided in three types ass following :-
It is a type of a scheme which offers capital appreciation and dividend earning opportunities to the investors. These funds are mainly invested in equities as the objective is to earn capital gains rather than regular income hence the return is primarily from the change in prices or NAVs over a long period of time. These schemes are also referred to as EQUITY FUND SCHEMES which include Sector Specific Schemes, Equity Linked Saving Schemes, Diversified Equity Schemes, etc. They are exposed to high returns with high risks.
INCOME FUND SCHEMES
These schemes promise a regular income to the investors. Majority of funds are channelised into fixed income securities such as government securities, debentures, and other debt instruments. These funds are low-risk and low-return schemes as compared to equity funded schemes. They are ideal for investors who are not willing to undertale high risk and want regular income.
The balance funded schemes are the combination of both growth fund and income fund schemes. These schemes are for the investors who are looking for regular income with moderate growth over a specific period of time.
3. OTHER TYPES OF SCHEMES
These funds are those which invest exclusively in government securities and bonds. These funds are preferred by risk averse investors who want low return at very low risk. Almost every fund operating in India has launched a gilt fund such as SBI Magnum Gilt is a Gilt fund operating in India.
MONEY MARKET FUNDS
Money market instruments have high liquidity and moderate income. They are invested in short term debt in order to provide investors with reasonable returns such as Treasury Bills, popularly known as T-Bills, Certificates of Deposits, Commercial Papers, etc. the average maturity period for such schemes is approximately 90 days or less. These schemes are mainly used by corporate and institutional investors who wish to invest their surplus funds for a short duration. The interest rates are determined by short-term interest rates.
EQUITY LINKED SAVINGS SCHEMES
These schemes are mainly for the purpose of tax-benefits to its investors under the provisions of Indian Income Tax Act, 1961. The funds are allocated in equities thus providing investors with growth opportunities. Investment in these schemes are tax-deductible from total income under Section 80C within the limit of Rs 1,50,000 which the investors save the tax liability on them. However these schemes have a lock-in period of at least 3 years.
Index Funds attempt to replicate the overall performance and working of the market index such as the BSE Nifty or the NSE 50. The funds are allocated on the proportionate weight of different securities as per stated on benchmark index and earn the same returns as per the market returns. It is ideal for the passive management of funds. The profits are earned in these schemes at a commensurate risk.
These funds are specifically invested in the different securities belonging to the same sector or industry. The idea is to gain profits of the sector or industry cycles. If that particular industry performs well, these schemes provide good returns.