Various Types of Mutual Funds You Can Invest in
In order to simplify investing for a broader audience, mutual funds are categorised by risk appetite, investment amount, horizon, and goals. Here are the types of mutual funds you can choose from:
Mutual Funds as Per the Maturity:
Depending on your financial standing and goals, you might be able to invest for a specific time window. You can invest in three types of mutual funds as per the maturity period:
- Open-Ended Schemes: These schemes enable you to buy and sell units at any time without a fixed maturity date. Designed for liquidity, they allow transactions at prices based on the net asset value (NAV).
- Close-Ended Scheme: Such schemes come with a maturity period, and you can only invest in the fund during the initial launch period, commonly known as the NFO (New Fund Offer). Additionally, the market price may differ from the scheme’s NAV because of demand, supply, and other market forces fluctuations.
- Interval Funds: A combination of open and close-ended schemes, this fund allows you to trade units at predetermined intervals.
Mutual Funds as per the Principal Investment:
When it comes to investment strategy and asset allocation, you can choose from the following types of mutual funds:
- Equity Schemes: When you choose an equity fund, you can invest primarily in stocks. Such funds comprise investing money pooled from various investors into shares and stocks of different companies. The performance of these funds depends entirely on the performance of the invested shares in the stock market. While the risk associated with equity funds tends to be higher, they also have the potential to generate substantial returns. Equity funds further consist of small-cap, mid-cap, and large-cap funds.
- डेट फंड: Debt funds allow you to invest in various fixed-income securities, including treasury bills, bonds, and other instruments. They encompass various types, such as Gilt Funds, Liquid Funds, and Monthly Income Plans. If you're looking for a passive investment option that offers a steady income, debt funds—with their fixed interest rates and maturity dates—are an excellent choice.
- मनी मार्केट फंड: Similar to stock market trading, investors also engage in the money market or capital market. This market operates under the supervision of the government in collaboration with financial institutions, banks, and corporations. Here, money market securities such as treasury bills, bonds, and certificates of deposit are issued. A fund manager typically invests your money and regularly distributes dividends. If you want to minimise risk, you can choose a money market fund with a shorter duration.
- हाइब्रिड फंड्स: Hybrid funds, also known as balanced funds, are the perfect mix of bonds and stocks. So, this type of mutual fund bridges the gulf between debt and equity funds. While usually, such funds allocate 60% of the assets in stocks and the rest in bonds or vice versa, the ratio can be variable.
Mutual Funds Based on Investment Goals
You can also choose to invest in different types of mutual fund schemes as per the financial goals you’d like to achieve. Some of the funds that help you fulfil different target goals are as follows:
- Growth Funds: With allocations in shares and growth sectors, such funds are best for those with surplus income and a larger risk appetite.
- Income Funds: Falling under the debt fund umbrella, these funds allow you to distribute your investment across bonds, certificates of deposit, and securities. With fund managers who ensure that the portfolio keeps up with rate fluctuations, this scheme is a good choice for risk-averse investors.
- Tax-Saving Funds: Funds like the Equity-Linked Savings Scheme help you maximise wealth while saving on taxes. They are best suited for investors with a longer horizon.
- Solution-Oriented Schemes: These funds come with a lock-in period of five years, making them suitable for those with certain financial goals, such as retirement or child education planning. They typically offer high yields, making them averse to most short-term fluctuations in the market. Investors can also benefit from the growth of leading companies as solution-oriented schemes are predominantly passively managed mutual funds where the portfolio manager aims to replicate the performance of a benchmark index.
As a side note, before April 2021, mutual funds in India used the term "Dividend Option" to describe a choice for investors. However, this was changed to "Income Distribution cum Capital Withdrawal" (IDCW) by the Securities and Exchange Board of India (SEBI).
IDCW (Income Distribution cum Capital Withdrawal) reflects how a mutual fund distributes income from its investments, primarily from dividends and capital gains. When you receive an IDCW payout, it’s essentially a return of part of your original investment rather than additional earnings. Therefore, investors should consider their long-term wealth creation goals, tax implications, and preferences for periodic income when evaluating IDCW.
Now that you know more about the different types of mutual funds in India, you can diversify your portfolio and meet your goals. To invest in various mutual funds easily, open an इन्वेस्ट सेवा अकाउंट एच डी एफ सी बैंक में आज!
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