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HomeFinanceWhat are the varied types of Mutual funds schemes available in India

What are the varied types of Mutual funds schemes available in India

A mutual fund is a bundle of money gathered by investors which are then invested in different asset classes, such as equity, debt, liquid assets, etc.

Mutual funds are registered with the Securities and Exchange Board of India. SEBI acts as the regulatory agency and outlines the regulatory framework of operation. It ensures that the investors' interest is safeguarded.

Types of mutual fund schemes based on the structure

Types of mutual fund schemes based on the structure
Types of mutual fund schemes based on the structure

Open-ended schemes

An open-ended scheme is a scheme which is available for investment/subscription throughout the year. These schemes can be subscribed to or redeemed continuously and have no fixed maturity period.

Investors may buy and sell units of these schemes at market price, also known as Net Asset Value (NAV), that is determined daily. The key feature of open-end schemes is liquidity, so they are preferred by the investors.

Close-ended schemes

These schemes are open for subscription during a specified period when the scheme is launched. Typically these schemes have a stipulated maturity period, e.g., 5-7 years and can be redeemed on a specific maturity date. For providing liquidity, these units are listed on the stock exchange and can be traded.

Investors invest in such schemes during the initial public issue, and after that, they can buy and sell the units of the scheme on the stock exchanges, where they are listed.

Some of the schemes also provide an exit route by offering investors an option to sell back the units to the fund house at NAV.

SEBI regulation made it mandatory for the fund house to provide either of the two exit routes, i.e., selling back or listing them on stock exchanges. Typically, these funds disclose the NAV every week.

Types of mutual fund schemes based on the asset class

This basically is a differentiation on the types of stocks it invests in. Like equity, debt, hybrid.

Reputed mutual funds like SBI MF have various schemes spread across different asset classes. An investor can choose to invest in the fund with respect to his/her ideal investment duration and risk appetite.

Types of mutual fund schemes based on the asset class
Types of mutual fund schemes based on the asset class

Debt schemes

These schemes invest in debt instruments such as government bonds, company debentures, and fixed income assets. These instruments provide fixed returns are thus considered to be a safe investment instrument. There are different types of sub-schemes under the scheme. These sub-schemes are primarily defined based on the maturity duration of debt instruments. The sub-schemes are -

  • Long-term debt scheme (invests in securities with more than one-year maturity)
  • Short-term debt scheme (invests in securities with less than one-year maturity)
  • Ultra-short-term debt scheme (invests in securities with concise term maturity)
  • Gilt fund (invests in government securities)

Money Market schemes

These schemes invest in liquid instruments such as commercial papers, treasury bills, etc. These schemes are considered to be a very safe option and thus provide a moderate return on your investment. These are supposed to be a perfect option for cash management purpose and are also suitable for investors looking to park abundant funds.

Equity schemes

These funds invest in equity stock of companies. These schemes provide high returns and thus comes with a high degree of risk. Within the scheme, there are multiple sub-scheme depending on the type of stocks a scheme invest. The sub-schemes are -

  • Large-cap funds invest in large companies
  • Mid-cap funds invest in mid-sized companies
  • Small-cap funds invest in small-sized companies
  • Multi-cap funds invest in companies across the market capitalization spectrum
  • Index funds invest in stocks that depict specific exchange (such as Nifty). It is done to monitor the returns and the movement of the index or to invest passively with the market.
  • Sectoral schemes invest in a particular sector or theme of the market for example infrastructure
  • Tax saving funds invest in stocks across the spectrum and come with a lock-in period of three years to offer tax benefits to the investor.

Hybrid schemes

These are the schemes that invest in more than one type of asset class generally equity and debt. Depending on the proportion of the asset class, the scheme is further divided into two sub-schemes namely -

  • Monthly income plan or the MIP when the debt portion is in the majority
  • Balanced fund when the equity accounts for the majority share

Types of mutual fund schemes based on the investment objective

Types of mutual fund schemes based on the investment objective
Types of mutual fund schemes based on the investment objective

Growth schemes

These schemes allow investors to invest money primarily in equities. The aim behind such a scheme is to provide capital

appreciation. These schemes are considered risky and are suitable for investors who are looking for a long-term investment horizon.

Income Schemes

This scheme provides investors with fixed income at every interval or capital protection. These schemes invest in fixed­ income instruments such as debentures, bonds, etc. These schemes generally invest in instruments with high credit rating (over A) indicating adequate safety.

Liquid Schemes

This scheme provides investors with a high degree of capital protection and offers high liquidity. These schemes invest primarily in short-­term investment instruments such as commercial papers, treasury bills, etc. These schemes come with low risk and thus provide average returns on investment and are primarily used for cash management purpose.

What are the benefits of investing in mutual funds?

Mutual funds and its benefits are talked like 24x7 these days. Thus, instead of detailing the benefits, let us quickly given you an overall picture for the industry and its benefits.

At a broader level, mutual funds offer -

  • Professional Management from experienced fund managers
  • Diversification by investing in more than one security and thus spreading the risk of concentration
  • Multiple choices of over 4000 funds in the industry
  • Affordability as you can invest with as low as Rs 100
  • Tax benefits if you invest in Equity Linked Savings Scheme
  • Liquidity as you can transact in mutual funds 24x7
  • High degree of transparency as funds are regulated by SEBI and are regularly monitored to ensure they comply with the laws of the land.

How to select a fund from the plethora of options?

As highlighted, plenty of mutual fund instruments are available to you. But, before you dive deep in the ocean, it is essential that you match the funds according to your preference.

As an investor, the following are points that you should keep in mind -

  • Diversification is the key to success and thus don't bet only on one name as it leads to concentration. Always ensure you have funds from different schemes mentioned above.
  • Keep inflation in mind while evaluating as it helps you get a sense on real returns.
  • Patience is essential to attain success. Remember, you can't climb the Everest in one day. Persistence leads to success and in times of volatility, it makes sense to evaluate and decide rather than hastily acting with a myopic view.
  • Consider age, income, liabilities, dependents to assess risk profile and then choose funds from a different scheme that align to the horizon and risk level.

How to invest?

Investment needs vary from people to people. Factors such as financial goal, risk appetite, time horizon, and the likes affect your investment decision. Thus, before you start your mutual fund investment instrument, you should analyze your goals and decide upon the time frame and risk. Based on this you should compare and zero down the investment options that are in sync with the risk-return profile.

I am Pravesh Maurya as a blogger and expert Content marketer also providing Paid and free guest posting services at affordable price. I am owner of and
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