Understanding the Types and Categories of Mutual Funds

Mutual fund categories tradeplus Understanding the Types and Categories of Mutual Funds

Mutual fund industry in India has grown phenomenally in recent years. More and more first time investors are flooding to this vehicle of investment. Thanks to the promotional ad campaign by the Association of Mutual Funds in India (AMFI). However, investors are puzzled when it comes to choosing the right mutual fund scheme that suits them. One reason for this is the too many categories of mutual fund schemes available. SEBI in the year 2018, came out with set of rules to re-categorize the mutual fund schemes. Nevertheless, still the confusion persists to some extent. In order to help investors to have clear understanding of the types/ categories of mutual funds in India, we have explained the various types/ categories of mutual fund scheme in tree diagram.

Understanding the types and categories of mutual funds tradeplus Understanding the Types and Categories of Mutual Funds

Mutual fund can be an open-end or closed end fund

Open-end – Open-end fund is a type of fund wherein the investor can buy and redeem the units at any point of time.

Closed-end – Closed-end fund is a type of fund wherein the investor can buy the units only at the time of its initial launch period. However, these funds are traded in the stock exchange and investors are provided with an exit route.

Mutual funds whether open end or closed end are broadly classified as

  • Equity
  • Debt
  • Hybrid
  • Specialized Funds

Equity Funds
These funds invest majorly in stocks. Since, these funds have their investments made in equities, they carry high risk. Investors who seek growth and willing to take higher risk can opt for equity funds. Based on the objective of the funds, it can be further classified as under:

Large Cap Funds – Funds that invest in stocks that has large market capitalization.
Top performing funds in this category are:

 Reliance Large Cap Fund
 HDFC Top 100 Fund
 Axis Bluechip Fund

Mid Cap Funds – Funds that invest in stocks that has medium market capitalization
Top performing funds in this category are:

 L&T Mid Cap Fund
 HDFC Mid Cap Opportunities
 Edelweiss Mid Cap Fund

Small Cap Funds – Funds that invest in stocks that has small market capitalization
Top performing funds in this category are:

 SBI Small Cap Fund
 HDFC Small Cap Fund
 L&T Emerging Businesses Fund

Large & Mid Cap Fund – These funds invest in both large and mid cap stocks where the growth opportunity is identified.

Top performing funds in this category are:

 Can Robeco Emerging Equities Fund
 Invesco India Growth Opportunities Fund
 Mirae Asset Emerging Bluechip Fund

Multi-Cap Funds – These are funds that invest in stocks of different market capitalization

Top performing funds in this category are:

 Kotak Standard Multi Cap Fund
 Mirae Asset India Equity Fund
 JM Multi Cap Fund

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Thematic or sectoral Funds – These funds invest in specific sector such as pharmaceutical, FMCG etc. These funds are more riskier as they concentrate on a single sector.

Top performing funds in this category are:

 ICICI Prudential Infra Fund
 Franklin Build India Fund
 L&T Infra Fund

Dividend Yield Funds – These funds invest in stocks that offer high dividend yield with steady business growth.

Top performing funds in this category are:

 Principal Dividend Yield Fund
 Templeton (I) Equity Fund
 ICICI Prudential Dividend Yield Equity Fund

Value Oriented Funds – These are funds that identify and invest in stocks that offer value and good future growth prospects.

Top performing funds in this category are:

 Tata Equity PE Fund
 L&T India Value Fund
 HDFC Capital Builder Value Fund

Contra Funds – These are funds that invest against the market trend. They invest in beaten-down stocks hoping the stock price to rise in the long run.

Top performing funds in this category are:

 Kotak India Equity Contra Fund
 Invesco India Contra Fund
 SBI Contra Fund

Index funds – These funds invest in stocks that forms part of an Index such as Nifty 50 or Sensex.

Top performing funds in this category are:

 ICICI Prudential Sensex Index
 UTI Nifty Index Fund
 HDFC Index – Nifty 50 Plan

Tax Saving Fund (ELSS) – These funds invest in equities. This scheme offers tax benefit to investors u/s 80C. The schemes has a lock-in period of 3 years.

Top performing funds in this category are:

 Axis Long Term Equity Fund
 L&T Tax Advantage
 Aditya Birla Sun Life Tax Relief ’96

Debt Funds

These funds are income oriented and carries low risk. These funds invest in debt instruments such as company debentures & bonds, government bonds and other debt instruments. Debt funds are classified as under:

Dynamic Bond Funds – These funds invest in both longer and shorter maturity instruments. In line with the name of the fund, they keep changing their portfolio according to the change in interest rate.

Top performing funds in this category are:

 Franklin India Dynamic Accrual Fund
 JM Dynamic Debt Fund
 IDFC Dynamic Bond

Money Market Funds – These funds invest in government Treasury Bills (T-Bills) & commercial papers (Cps) offered by corporates. These funds are ultra-short term funds and are highly liquid. Investors looking for opportunity to park their surplus money for very short period or even for a day can invest in these funds.

Top performing funds in this category are:

 Kotak Liquid Scheme
 Reliance Ultra Short Duration Fund
 Tata Money Market Fund

Long Duration or Income Funds – These funds invest in long term government securities and their objective is to provide capital protection and regular income to the investors.

Top performing funds in this category are:

 Reliance Income Fund
 ICICI Prudential Bond Fund
 Aditya Birla Sun Life Income Fund

Short Duration Funds – These funds invest in short term debt instruments, which has a maturity of 1 year to 3 years period. These funds also provide capital protection along with fixed income to the investors.

Top performing funds in this category are:

 HDFC Short Term Debt Fund
 Baroda Pioneer Short Term Bond
 L&T Short Term Bond Fund

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Gilt Fund – These funds invest in long term government securities. These funds offer regular income and capital protection to the investors.

Top performing funds in this category are:

 Edelweiss G-Sec Fund
 UTI Gilt Fund
 L&T Gilt Fund

Credit Opportunities Funds – These funds invest in lower-rated bonds that offers higher interest. These are more riskier funds as they invest in debt instruments that offer higher interest irrespective of the ratings of the instruments.

Top performing funds in this category are:

 L&T Credit Risk Fund
 Franklin India Credit Risk Fund
 Kotak Credit Risk Fund

Fixed Maturity Plans – These are close-end funds and they have a lock in period. Investment can be done in these funds only during its initial offer.

Hybrid Funds

These funds are also called balanced funds as they balance their investment among equity and debt instruments. These funds are further classified into :

Aggressive Funds – These funds invests 60-85% in equities and carry higher risk. Investors looking for growth and are willing to take higher risk can invest in these funds.

Top performing funds in this category are:

 L&T Hybrid Equity Fund
 Can Robeco Equity Hybrid Fund
 HDFC Mid Cap Opportunities Fund

Conservative Funds – These funds invest 75-90% in debt instruments and are less risky. Investors looking for low risk investment can opt for these funds.

Top performing funds in this category are:

 BNP Paribas Conservative Hybrid Fund
 UTI Regular Savings Fund
 Axis Regular Saver Fund

Balanced Funds – These funds invest up to 60% in equities and 40% in debt instruments offering the growth opportunity of equity as well as security.

Top performing funds in this category are:

 Sundaram Equity Hybrid Fund
 Principal Hybrid Equity Fund
 Can Robeco Equity Hybrid Fund

Balanced Advantage Fund or Dynamic Asset Allocation Fund – These funds keep changing their investment portfolio according to the market condition. They switch between equity and debt.

Top performing funds in this category are:

 ICICI Prudential Balanced Advantage Fund
 SBI Dynamic Asset Allocation Fund
 Aditya Birla Sun Life Balanced Advantage Fund

Multi-Asset Allocation Funds – These funds invest in equity, debt and gold. It offers the advantage of investing in more asset class.

Top performing funds in this category are:

 Sundaram Multi Asset Fund
 Edelweiss Multi Asset Allocation Fund
 ICICI Prudential Multi Asset Fund

Arbitrage Funds – These funds invest 65% in equities. They take advantage of the price difference between cash and derivative market.

Top performing funds in this category are:

 Kotqak Equity Arbitrage Fund
 IDFC Arbitrage Fund
 Invesco India Arbitrage Fund

Equity Savings Funds – These funds invest in equity, debt and they also take advantage of arbitrage opportunities.

Top performing funds in this category are:

 Aditya Birla Sun Life Equity Savings Fund
 Kotak Equity Savings Fund
 ICICI Prudential Equity Income Fund

Specialized Funds

The following types of funds are classified as specialized funds

International Fund – These funds invest in stocks of countries other than the home country.

Top performing funds in this category are:

 Franklin (India) Feeder Franklin US Opportunities Fund
 DSP Blackrock Global Allocation Fund
 Reliance US Opportunities Fund

Global Funds – These funds invest in stocks of other countries as well as home country.

Top performing funds in this category are:

 Principal Global Opportunities Fund
 DHFL Pramerica Global Agribusiness Offshore Fund
 SBI Magnum Global Fund

Fund of Funds – These funds invest in the other mutual fund schemes. Investors who want to have diversified mutual fund portfolio can opt to invest in this fund instead of investing in different funds for different objectives.

Top performing funds in this category are:

 IDFC Asset Allocation Fund of Funds-Conservative Plan
 HDFC Dynamic PE Ratio Fund of Fund
 Franklin India PE Ratio Fund of Funds

Exchange Traded Funds – These funds are listed and traded in stock exchanges. These funds replicate the indices. It is a basket of stocks that represent the index such as Nifty 50 and Sensex.

Top performing funds in this category are:

 Kotak Nifty ETF
 Reliance ETF Nifty BeES
 SBI ETF Sensex

Now the categorization of mutual funds are clear and

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