Based on Investment Strategy

1. Active Funds: Active mutual funds are designed to outperform the market by continuously seeking better returns. Fund managers in active funds actively research and select stocks, making adjustments based on market conditions and their expertise. The goal is to generate higher returns than the benchmark index, offering the potential for greater gains, though they may come with higher risk and fees due to the active management involved.

2. Passive Funds: Passive mutual funds, on the other hand, aim to mirror the performance of a specific market index. Instead of trying to beat the market, these funds invest in the same stocks and in the same proportion as the index they track. Examples of passive funds include index funds and Exchange Traded Funds (ETFs). Since passive funds follow a set strategy with less frequent trading, they typically come with lower management fees and provide a simple way to match market performance.

Based on structure

1. Open-Ended Funds: Open-ended mutual funds offer flexibility for investors, allowing them to buy and sell shares at the current Net Asset Value (NAV) at any time. The NAV of these funds is updated daily, and there are no restrictions on the number of units available. This structure provides high liquidity, making it easy for investors to enter and exit the fund whenever they choose. Open-ended funds are ideal for those who value accessibility and want to react quickly to market changes.

2. Closed-Ended Funds: Closed-ended funds have a fixed number of shares and a predetermined asset base, creating a distinct investment structure. Unlike open-ended funds, their NAV does not fluctuate daily; instead, it is determined based on market demand and supply. Investors can only purchase shares during a New Fund Offer (NFO), and once the NFO closes, no new investors can join until the fund matures. Existing investors also cannot redeem their shares until maturity, but to maintain liquidity, these funds are traded on stock exchanges. An example of a closed-ended fund is a fixed maturity plan, which is designed to invest for a specific duration and return the principal at maturity.

Based on investment option

1. Growth Option: Under the growth option, any dividends or profits generated from mutual fund investments are automatically reinvested back into the fund. This strategy allows investors to benefit from compound growth over time, as their investment continues to grow without interruption. The growth option is ideal for investors seeking long-term capital appreciation and who are not dependent on immediate income from their investments.

2. Dividend Option: The dividend option provides unit holders with regular distributions of profits earned by the fund. These dividends can be paid out monthly, quarterly, or annually, depending on the fund’s policy. This option is suitable for investors looking for a steady income stream from their investments while still participating in the potential growth of the fund. The dividend option allows investors to enjoy the benefits of both income generation and potential capital appreciation.

Based on Asset Class

Equity

Equity funds in India invest at least 65% of their total assets in stocks. While these funds are associated with a significant level of risk due to their focus on equities, they also have the potential to generate substantial returns over the long term. Equity funds can be further classified based on their category and investment objectives. Below are the various types of equity mutual funds:

1. Large Cap Fund: Invests at least 80% of its assets in large-cap stocks, which are typically well-established companies with a stable performance.

2. Mid-Cap Funds: Invests a minimum of 65% in mid-cap stocks, focusing on companies with the potential for growth while maintaining a moderate risk profile.

3. Large and Mid Cap Funds: Allocates at least 35% of its assets in large-cap stocks and 35% in mid-cap stocks, providing a balanced exposure to both segments.

4. Small Cap Fund: Invests at least 65% in small-cap stocks, which can offer high growth potential but also come with higher volatility.

5. Multi Cap Fund: Invests a minimum of 65% in equity and equity-related instruments across various market capitalizations, allowing for diversification.

6. Thematic/Sector Funds: Focuses at least 80% of its investments in stocks of a specific sector or theme, targeting concentrated areas of growth.

7. Equity Linked Savings Scheme (Tax Saver Funds): Invests at least 80% in stocks in accordance with the Equity Linked Saving Scheme, 2005, providing tax benefits under Section 80C.

8. Index Funds or Exchange Traded Funds (ETFs): Allocates a minimum of 95% to securities of a particular index, aiming to replicate the performance of that index.

9. Focused Funds: Concentrates on a limited number of stocks (maximum 30), with at least 65% in equity and equity-related instruments, allowing for a high conviction strategy.

10. Value Funds: Employs a value investment strategy, with at least 65% in stocks that are considered undervalued relative to their intrinsic value.

11. Contra Funds: Follows a contrarian investment strategy, investing at least 65% in stocks that are currently out of favor but have the potential for future appreciation.

12. Dividend Yield Funds: Primarily invests in dividend-yielding stocks, with at least 65% in stocks, aiming to provide a steady income stream alongside capital growth.

Debt:

Debt mutual funds in India primarily invest a significant portion of their assets in debt or fixed-income instruments. These include government securities, corporate bonds, debentures, and money market instruments such as treasury bills, commercial papers, and certificates of deposits. Debt mutual funds generally invest in high-rated securities, offering lower risk levels compared to equity funds. Below are the types of debt funds:

1. Overnight Funds: Invest in overnight securities with a maturity of just 1 day.

2. Liquid Funds: Invest in debt and money market securities with maturities of up to 91 days.

3. Ultra Short Duration Funds: Invest in debt and money market instruments with a Macaulay duration of the portfolio between 3 to 6 months.

4. Low Duration Funds: Invest in debt and money market instruments with a Macaulay duration of the portfolio between 6 to 12 months.

5. Money Market Funds: Invest in money market instruments with maturities of up to 1 year.

6. Short Duration Funds: Invest in debt and money market instruments with a Macaulay duration of the portfolio between 1 to 3 years.

7. Medium Duration Funds: Invest in debt and money market instruments with a Macaulay duration of the portfolio between 3 to 4 years.

8. Medium to Long Duration Funds: Invest in debt and money market instruments with a Macaulay duration of the portfolio between 4 to 7 years.

9. Long Duration Funds: Invest in debt and money market instruments with a Macaulay duration of the portfolio greater than 7 years.

10. Dynamic Bond Funds: Invest across various durations, adjusting the portfolio based on market conditions.

11. Corporate Bond Funds: Invest a minimum of 80% in corporate bonds that are rated AA+ and above.

12. Credit Risk Funds: Invest a minimum of 65% in corporate bonds rated AA and below, targeting potentially higher yields with increased risk.

13. Banking and PSU Funds: Invest a minimum of 80% in debt instruments of banks, public sector undertakings, public financial institutions, and municipal bonds.

14. Gilt Funds: Invest a minimum of 80% in government securities (G-secs) across various maturities.

15. Gilt Funds with 10-Year Constant Duration: Invest a minimum of 80% in G-secs, ensuring that the Macaulay duration of the portfolio equals 10 years.

16. Floater Funds: Invest a minimum of 65% in floating rate instruments, which can help mitigate interest rate risk.

Hybrid Mutual Funds

Hybrid mutual funds in India invest in both debt and equity, previously known as balanced funds. Some hybrid funds may also include other asset classes like gold and real estate. By investing across various asset classes, these funds attract investors with moderate risk tolerance. Below are the types of hybrid funds:

1. Conservative Hybrid Funds: Invest 10% to 25% in equity and equity-related instruments and 75% to 90% in debt instruments.

2. Balanced Hybrid Funds: Invest 40% to 60% in equity and equity-related instruments and 40% to 60% in debt instruments.

3. Aggressive Hybrid Funds: Invest 65% to 80% in equity and equity-related instruments and 20% to 35% in debt instruments.

4. Dynamic Asset Allocation or Balanced Advantage Funds: Invest 10% to 25% in equity and equity-related instruments and 75% to 90% in debt instruments, adjusting allocations based on market conditions.

5. Multi-Asset Allocation Funds: Invest in at least three asset classes, ensuring a minimum allocation of at least 10% in each asset class.

6. Arbitrage Funds: Follow an arbitrage strategy, with a minimum of 65% investment in equity and equity-related instruments.

7. Equity Savings Funds: Invest a minimum of 65% in equity and equity-related instruments, along with a minimum of 10% in debt instruments and derivatives, as specified in the Scheme Information Document (SID).