Types or Classification of Mutual Funds: Mutual funds are a trust that is handled by professionals whose primary task is to accumulate funds from multiple investors & further invest them in numerous securities such as stocks, precious metals, bonds etc.
Mutual funds provide individual or small investors reach to professionally managed portfolios of bonds, equities, and other types of securities. For each shareholder, therefore, proportional participation leads to the gains or losses of the fund.
The funds are invested in such a process that the losses can be efficiently compensated with the profits.
Suppose a person is facing complexity in finding the time to do research over multiple investment options available in the market & make a choice. In that case, mutual funds are the most reliable way to remove their hassle. Mutual funds are acknowledged as the easy and flexible mode of investment, which also grants liquidity to the investor.
Mutual funds are allocated based on Investment objectives & Maturity period.
Based on Investment Objectives
- Growth or Equity funds:Â Equity funds are the funds into which the bulk of the investment is made in equity shares. Therefore it offers a high risk but also the potential of huge returns. To achieve long-term growth is the primary goal for investment under such kind of funds. There may be funds that focus primarily on a single sector of the market, e.g. the equity fund of the banking sector.
- Debt or Income Funds:Â The investment made under such kind of funds are in securities such as debentures, government securities, bonds etc. Since investment is addressed in debt instruments, the risk factor is low & income is regular and stable. Income or Debt funds are pretty limited volatile as compared to equity funds. The investment goal made under such type of safe funds and to accomplish moderate growth of funds.
- Balanced funds:Â The money that is invested in both equity & debt instruments is called Underbalanced funds. The investment goal is to achieve both moderate growth and profits. They guarantee stable returns & recognition in capital to the individuals who have invested money in balanced funds.
- Money Market or Liquid funds:Â For short-term investments, such funds are made as commercial papers, treasury bills etc., under which the timeline is less than 91 days. In order to attain liquidity is the main objective of such investment under liquid funds, average return on funds and increase in capital.
- Gilt funds:Â These kinds of funds carry no credit risk because they are government securities and are considered the safest sort of funds.
There are also alternatives to choose for the growth option and dividend option. In the choice of growth, the income is not distributed; whereas in the dividend option, the income earned is distributed among the unitholders; therefore, the income obtains reinvested in the same fund.
Based on Maturity Period
- Open-Ended Fund: The funds in which the maturity date is not fixed are Open-ended funds. The investors hold the opportunity to sell and buy units at any time at NAV. Investors can make an investment at any time during the year & redemption can also be made on an unbroken basis as these are the liquid funds.
- Close-ended fund:Â The funds where the maturity period is fixed are called Close-ended funds. Like open-ended funds, These funds are not available for subscription all the time. Instead, they are available for investment during a specified period of time, i.e. when these are launched initially.
- Interval Funds:Â The combined version of Open-ended, as well as closed-ended funds, are considered Interval funds. These funds are available at predetermined intervals for trading in the stock exchange.