Types of Mutual Funds in India

In the financial world, mutual funds are a reliable and growing industry. They involve pooling money from multiple investors, which is then professionally managed by a fund manager. The manager invests this pooled money in assets like gold, bonds, and stocks, depending on the investment goal. This variety in mutual funds provides people with options to diversify their investments, leading to effective portfolio management and smart asset management.


Different Types of Mutual Funds in India and their Advantages


1. Equity Mutual Funds: 


Equity mutual funds invest in company shares based on their size. According to SEBI guidelines, these funds must have 65% of assets in equity or related assets. They can be actively or passively managed and are categorized based on company size and investment portfolio. Equity mutual funds are suitable for new investors and those with smaller investment amounts.


How it Works:

Equity funds allow retail investors to choose categories based on their interests, such as technology, finance, or pharmaceuticals. Investors can select specific stocks in foreign or domestic markets with varying risks based on their investment goals. 


Categories of Equity Mutual Fund Schemes:


Large Cap Equity Funds: Invest in high-cap companies for consistent returns.

Mid-cap Equity Funds: Offer growth potential with investments in mid-sized companies.

Small-Cap Equity Funds: Invest in smaller companies with higher risk and volatility.

Multi-cap Funds: Allow diversification across sectors and capitalizations for reduced volatility.

Thematic Equity Funds/Sectoral funds: Specialized in specific sectors like IT, banking, or pharmaceuticals, with higher returns at higher risk.


2. ELSS (Equity Linked Savings Scheme) Mutual Funds: 


ELSS mutual funds, with a lock-in period of around three years, provide tax benefits and the potential for high returns.


3. Index Mutual Funds: 


Index Mutual Funds replicate an index, providing low-cost and transparent investment options for low-risk players.


4. Debt Mutual Funds: 


Debt funds invest in fixed-income instruments like corporate and government bonds, providing stable returns. These funds have a maturity period, and interest income from the underlying debt securities is the main source of return.


How It Works:

Debt funds invest in bonds at a fixed price, earning profits when sold. The NAV of the fund, influenced by interest rates, determines the fund’s sale and cost price. Debt funds are ideal for less risky investments with stable returns.


Categories of Debt Mutual Fund Schemes:


Liquid Funds: Ideal for short-term investors with a 91-day maturity period.

Income Funds: Invest in varying time period debt securities, focusing on medium- to long-term securities.

Short-Term Funds: Invest in government securities with a balance between risk and return.

Gilt Funds: Focus on government securities for safety and stability.

Fixed Maturity Plans (FMPs): Have a fixed maturity date, providing predictability in returns.


5. Hybrid Mutual Funds:


Hybrid funds, also known as balanced funds, mix various asset classes like equities and fixed-income securities into a single portfolio to balance risk.


How It Works: 

Hybrid funds invest in company stocks and fixed-income securities, balancing risk based on the allocation of equity and debt.


Categories of Hybrid Mutual Funds:


Equity-Oriented Hybrid Funds: Allocate at least 65% of its assets in to equities and rest in debt.

Debt-Oriented Hybrid Funds: Invest at least 60% of the scheme’s assets in debt funds and rest in equities.

Balanced Funds: Invest 65% in equity funds for a tax exemption on long-term capital gains.


Benefits of Investing in Mutual Funds:


  • Diversification: Spread your risk by investing in different areas.
  • Accessibility: You can start with as little as 1000 rupees.
  • Returns: Mutual funds provide an opportunity for good returns.
  • Easy Monitoring: Platforms like MoneyPanda SIP make it simple to keep an eye on your investments.

Takeaway: Explore My Money Panda SIP to manage your funds easily. It’s an online platform where you can freely select and manage your funds, much like shopping. Stay informed about your money effortlessly and benefit from expert advice.


Frequently Asked Questions:


Q1. How many types of mutual funds are there in India?

India has over 44 registered mutual funds (as per Association of Mutual Funds in India) with more than 2500 schemes. This variety allows investors to choose based on their risk tolerance and financial goals.


Q2. What is the minimum investment required for mutual funds?
The minimum investment depends on factors like the type of mutual fund, your investment location, and your preferred investment method. Generally, you can start with as little as 500 rupees using a Systematic Investment Plan (SIP) or invest 100 rupees in a lump sum.


Q3. Can Non-Resident Indians (NRIs) invest in Indian mutual funds?

Yes, NRIs can invest in Indian mutual funds. However, they usually need to have a NRE (Non-Residential External) or NRO (Non-Residential Ordinary) account for these investments.


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