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Kill 2 birds with one stone – Mutual Funds.

Now, people have different income backgrounds with diverse investment goals. Hence, we have categorized mutual fund types based on multiple parameters to make investment decisions easier for you.

  1. Based on Asset Class
  2. Based on Structure
  3. Based on Investment Goals
  4. Based on Risks

Mutual Funds Based on Asset Class

Equity Funds

Primarily investing in stocks, they also go by the name stock funds. They invest the money amassed from investors from diverse backgrounds into shares of different companies. The returns or losses are determined from how these shares perform (price-hikes or price-drops) in the stock market. As equity funds come with a quick growth, the risk of losing money is comparatively higher.

Debt Funds

Debt funds are invested in fixed income securities like bonds, securities and treasury bills – Fixed Maturity Plans (FMPs), Gilt Fund, Liquid Funds, Short Term Plans, Long Term Bonds and Monthly Income Plans among others – with fixed interest rate and maturity date. Go for it, if you are a passive investor only looking for a small but regular income (interest and capital appreciation) with minimal risks.

Money Market Funds

Just as some investors trade stocks in the stock market, some trade money in the money market, also known as capital market or cash market. It is usually run by the government, banks or corporations by issuing money market securities like bonds, T-bills, dated securities and certificate of deposits among others. Money market fund manager invests your money and disburses regular dividends to you in return. If you opt for a short-term plan (13 months max), the risk is relatively less.

Hybrid Funds

As the name implies, Hybrid Funds (also go by the name Balanced Funds) is an optimum mix of bonds and stocks, thereby bridging the gap between equity funds and debt funds. The ratio can be variable or fixed. In short, it takes the best of two mutual funds by distributing, say, 60% of assets in stocks and the rest in bonds or vice versa. This is suitable for investors willing to take more risks for ‘debt plus returns’ benefit rather than sticking to lower but steady income schemes.

Sector Funds

Investing solely in one specific sector, theme-based mutual funds. As these funds invest only in specific sectors with only a few stocks, the risk factor is on the higher side. One must be constantly aware of the various sector-related trends, and in case of any decline, just exit immediately. However, sector funds also deliver great returns. Some arenas like banking, IT and pharma have witnessed huge and consistent growth in recent past and are predicted to be promising in future as well.

Index Funds

Suited best for passive investors, index funds put money in an index. It is not managed by a fund manager. An index fund simply identifies stocks and their corresponding ratio in the market index, and put the money in similar proportion in similar stocks. Even if they cannot outdo the market (which is the reason why they are not popular in India), they play it safe by mimicking the index performance.

Tax-saving Funds

ELSS or Equity Linked Saving Scheme is gaining popularity as it serves investors double benefit of building wealth as well as save on taxes – all in the lowest lock-in period of only 3 years. Investing predominantly in equity (and related products), it has been known to earn you non-taxed returns from 14-16%. This is best-suited for long-term and salaried investors.

Funds of Funds

A diversified mutual fund investment portfolio offers a slew of benefits, and ‘Funds of Funds’ aka multi-manager mutual funds are made to exploit this to the tilt – by putting their money in diverse fund categories. In short, buying one fund that invests in many funds rather than investing in several achieves diversification as well as saves on costs.

Mutual Funds Based On Structure

Mutual funds can be categorized based on different attributes (like risk profile, asset class etc.). Structural classification – open-ended funds, close-ended funds and interval funds – is broad in nature and the difference depends on how flexible is the purchase and sales of individual mutual fund units.

Open-ended Funds

These funds don’t have any constraints in time period or number of units – an investor can trade funds at their convenience and exit when they like a the current NAV (Net Asset Value). This is why its unit capital changes constantly with new entries and exits. An open-ended fund may also decide to stop taking in new investors if they do not want to (or cannot manage) large funds.

Closed-ended Funds

Here, the unit capital to invest is fixed beforehand, and hence they cannot sell a more than a pre-agreed number of units. Some funds also come with an NFO period, which is the deadline to buy units. It has a specific maturity tenure and fund managers are open to any fund size, however large. SEBI mandates investors to be given either repurchase option or listing on stock exchanges to exit the scheme.

Interval Funds

This has traits of both open-ended and closed-ended funds. Interval funds can be purchased or exited only in specific intervals (decided by the fund house) and is closed the rest of the time. No transactions will be permitted for at least 2 years. This is suitable for those who want to save a lump sum for an immediate goal (3-12 months).

Mutual Funds Based on Investment Goals

Growth Funds

Growth funds usually put a huge portion in shares and growth sectors, suitable for investors (mostly Millennials) who have surplus of idle money to be distributed in riskier plans (albeit with possibly high returns), or are positive about the scheme.

Income Funds

This belongs to the family of debt mutual funds that distribute their money in a mix of bonds, certificate of deposits and securities among others. Helmed by skilled fund managers who keep the portfolio in tandem with the rate fluctuations without compromising on the portfolio’s creditworthiness, Income Funds have historically earned investors better returns than deposits and are best suited for risk-averse individuals from a 2-3 years perspective.

Liquid Funds

Like Income Funds, this too belong to the debt fund category as they invest in debt instruments and money market with a tenure of up to 91 days. The maximum sum allowed to invest is Rs 10 lacs. One feature that differentiates Liquid Funds from other debt funds is how the Net Asset Value is calculated – NAV of liquid funds are calculated for 365 days (including Sundays) while for others, only business days are calculated.

Aggressive Growth Funds

Slightly on the riskier side when choosing where to invest in, Aggressive Growth Fund is designed to make steep monetary gains. Though susceptible to market volatility, you may choose one as per the beta (tool to gauge the fund’s movement in comparison with the market). Example, if market shows a beta of 1, an aggressive growth fund will reflect a higher beta, say, 1.10 or above.

Capital Protection Funds

If protecting your principal is your priority, Capital Protection Funds can serve the purpose while earning relatively smaller returns (12% at best). The fund manager invests a portion of your money in bonds or CDs and the rest in equities. You will not incur any loss. However, you need a least 3 years (closed-ended) to safeguard your money and the returns are taxable.

Fixed Maturity Funds

Investors choose as the FY ends to take advantage of triple indexation, thereby bringing down tax burden. If uncomfortable with the debt market trends and related risks, Fixed Maturity Plans (FMP) – investing in bonds, securities, money market etc. – present a great opportunity. As a close-ended plan, FMP functions on a fixed maturity period, which could range from 1 month to 5 years (like FDs). The Fund Manager makes sure to put the money in an investment with the same tenure, to reap accrual interest at the time of FMP maturity.

Pension Funds

Putting away a portion of your income in a chosen Pension Fund to accrue over a long period to secure you and your family’s financial future after retiring from regular employment – it can take care of most contingencies (like a medical emergency or children’s wedding). Relying solely on savings to get through your golden years is not recommended as savings (no matter how big) get used up. EPF is an example, but there are many lucrative schemes offered by banks, insurance firms etc.

Mutual Funds Based on Risks

No-risk Funds:

Liquid Funds and Ultra Short-term Funds (1 month to 1 year) are not risky at all, and understandably their returns are low (6% at best). Investors choose this to fulfil their short-term financial goals and to keep their money safe until then.

Low-risk Funds

In the event of rupee depreciation or unexpected national crisis, investors are unsure about investing in riskier funds. In such cases, fund managers recommend putting money in either one or a combination of liquid, ultra short-term or arbitrage funds. Returns could be 6-8%, but the investors are free to switch when valuations become more stable.

Medium-risk Funds

Here, the risk factor is of medium level as the fund manager invests a portion in debt and the rest in equity funds. The NAV is not that volatile, and the average returns could be 9-12%.

High-risk Funds

Suitable for investors with no risk aversion and aiming for huge returns in the form of interest and dividends, High-risk Mutual Funds need active fund management. Regular performance reviews are mandatory as they are susceptible market volatility. You can expect 15% returns, though most high-risk funds generally provide 20% returns (and up to 30% at best).

Specialized Mutual Funds

Emerging market Funds

To invest in developing markets is considered a steep bet and it has undergone negative returns too. India itself a dynamic and emerging market and investors do earn high returns from the domestic stock market, they are prone to fall prey to market volatilities. However, in a longer-term perspective, it is evident that emerging economies will contribute to the majority of global growth in the coming decade as their economy growth rate is way superior than that of the US or the UK.

International/foreign Funds

Favored by investors looking to spread their investment to other countries, Foreign Mutual Funds can get investors good returns even when the Indian Stock Markets do fare well. Investor can employ a hybrid approach (say, 60% in domestic equities and the rest in overseas funds) or a feeder approach (getting local funds to place them in foreign stocks) or a theme-based allocation (eg, Gold Mining).

Global Funds

Aside from the same lexical meaning, Global Funds are quite different from International Funds. While a global fund chiefly invests in markets worldwide, it also includes investment in your home country. The International Funds concentrate solely on foreign markets. Diverse and universal in approach, Global Funds can be quite risky too owing to different policies, market and currency variations, though it does work as a break against inflation and long-term returns have been historically high.

Real Estate Funds

In spite of the real estate boom in India, many are wary about investing in such projects due to multiple risks. Real Estate Fund can be a perfect alternative as the investor is only an indirect participant by putting their money in established real estate companies/trusts rather than projects. A long-term investment, it negates risks and legal hassles when it comes to purchasing a property as well as provide liquidity to some extent.

Commodity-focused Stock Funds

Ideal for investors with sufficient risk-appetite and looking to diversify their portfolio, commodity-focused stock funds give a chance to dabble in multiple and diverse trades. Returns are not periodic and are either based on the performance of the stock company or the commodity itself. Gold is the only commodity in which mutual funds can invest directly in India. The rest purchase fund units or shares from commodity businesses.

Market Neutral Funds

For investors seeking protection from unfavorable market tendencies while sustaining good returns, Market-neutral Funds meet the purpose (like a hedge fund). With better risk-adaptability, these funds give high returns and even small investors can outstrip the market without stretching the portfolio limits.

Inverse/leveraged Funds

While a regular index fund moves in tandem with the benchmark index, the returns of an inverse index fund shift in the opposite direction. Simply put, it is nothing but selling your shares when the stock goes down, only to buy them back at an even lesser cost (to hold until the price goes up again).

Asset Allocation Funds

Combining debt, equity and even gold in optimum ratio, this is a greatly flexible fund. Based on a pre-set formula or fund manager’s inferences on the basis on the current market trends, Asset Allocation Funds can regulate the equity-debt distribution. It is almost like Hybrid Funds, but requires great expertise in choosing and allocation of the bonds and stocks from the fund manager.

Gift Funds

Yes, you can gift a mutual fund or an SIP to your loved ones to secure their financial future.

Exchange-traded Funds

It belongs to the Index Funds family and are bought and sold on exchanges. Exchange-traded Funds have unlocked a world of investment prospects, enabling investors to gain comprehensive exposure to stock markets abroad as well as specialized sectors. An ETF is like a Mutual Fund that can be traded in real-time at a price that may rise or fall many times in a day.


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  1. Dynamic bond funds are debt funds that alter allocation between long-term and short-term bonds to take advantage of changing interest rates. Read on to know more about them and see if they could be a good investment opti
  2. Micro-cap mutual funds invests in companies with a market capitalization smaller than small-cap, mid-cap and large enterprises. The term micro-cap refers to the company size and not mutual fund size.
  3. Offshore funds invest in overseas companies or MNCs, giving investors a chance to diversify their portfolios and gain exposure to global market. They are regulated by RBI & SEBI.
  4. Monthly Income Plans or MIPs belong to the hybrid mutual fund category - generally investing 15% to 25% of the portfolio in equities and the rest in debt funds or money market instruments.
  5. If you are looking to diversify your investment portfolio, it might help to look abroad! Global Mutual Funds will help grow your portfolio. Learn more...
  6. Equity mutual funds invest primarily in the stock markets with an aim to generate higher returns. Learn about the different types of equity funds.
  7. Debt funds are ideal investments for conservative investors. Learn more about the different types of debt funds and who should invest in them.
  8. Hybrid funds are mutual funds that invest in different asset classes like equities and debt. Find out about the different types of hybrid funds.
  9. Liquid Funds are the best way of creating an emergency fund. Wondering how to go about it? let us give you the lowdown on creating your rainy-day stash!
  10. Fund of funds is a mutual fund scheme designed to invest in different mutual funds, allowing the investors to diversify their investments.
  11. Sector funds and thematic funds invest in a particular segment of the economy. Find out if these funds make a good investment option.
  12. Fixed Maturity Plans are debt mutual funds that offer indicative returns for a pre-fixed period of investment. Compare FMPs with fixed depostis/ FD & know about its tax benefits.
  13. Pension plans are important to plan properly for retirement. Find out about the different types of pension plans in India.
  14. Index funds are passive mutual funds that track a particular index. These funds are less riskier than actively-managed funds but also earn lesser returns.
  15. Capital Protection Funds are designed to protect the invested money and earn optimal returns. Find out more about these mutual funds.
  16. Asset allocation funds invest in more than one asset class to help investors diversify and mitigate risks. Find out the benefits of these funds.
  17. Real estate funds invest in commercial and residential properties. Find out how they compare to other mutual funds and if you should invest in them.
  18. Mid-cap equity funds invest primarily in mid-cap stocks, which allows them to earn high returns. Choose these funds if you can withstand the risks.`
  19. Multi-cap equity funds are diversified funds that invest in stocks of different market caps. Find out who these funds are best for.
  20. Small-cap equity funds can be more volatile than other diversified equity funds, but they also have the capability of earning higher returns.
  21. Large-cap funds are equity mutual funds that invest primarily in large-cap stocks. Learn more about these funds and who should invest in them.
  22. An emergency fund can be very useful in times of financial crisis. Find out how you can build an emergency fund and where you should invest it.