When you have to buy a car among different options available in the Market. There are different brands, specific purpose vehicle available in the market like hatchbacks, sedans, SUVs and maybe even sports cars. Each brand and car appeal to serves a different class of customer and purpose. An adventurous person may prefer a sports car with luxury brand while a family man with kids may opt for an SUV from either a luxury brand or more popular brand. In the same way, there are different types of mutual funds in India. 

Each fund type focus to meet specific goals of Investor. The most popular types of mutual funds are as follows: 

TYPES OF FUNDS BASED ON STRUCTURE 

• OPEN-ENDED MUTUAL FUNDS 

An open-end fund is a mutual fund scheme where investor can invest and redemption on any business day throughout the year, (akin to a savings bank account, wherein investor deposit and withdraw money on any given day). An open ended MF is perpetual and does not have any maturity date also known as highly liquid due to its nature of its redemption option which can be exercise on any business day.  

• CLOSED-ENDED MUTUAL FUNDS 

A closed-end funds comes with the initial offer period for subscription for investor and has a specified tenor and fixed maturity period. Investor can invest in the fund only when it is launched and redemption option can be exercise only at the time of maturity. Due to such restriction, the units of a closed-end fund are compulsorily listed on a stock exchange after completion of fund offer, and are traded on the stock exchange just like shares. Such schemes are not very liquid because trading volumes are very less. 

TYPES OF FUNDS BASED ON ASSET CLASS 

• EQUITY FUNDS 

Equity funds invest their corpus in different stocks with the objective of generating higher capital appreciation. The returns on equity funds are directly linked to market movements, such funds are classified in higher degree of risk. Funds are suitable for high risk investor or young investor; also popular to build your corpus for long term investment as the level of risk comes down over time. 

• DEBT FUNDS 

Debt funds invest their corpus in assets like government securities and corporate bonds also known as fixed income funds. These funds offer normally better return than banks fixed deposits and are considered relatively less risky vis-à-vis Equity funds. Funds are ideal for investors looking for steady income and are averse to risk.   

• HYBRID FUNDS 

Hybrid funds offer a perfect blend of benefits to investor to invest in both equity and debt funds. These funds invest in a mix of both equity and fixed income securities. Based on asset allocation, hybrid funds are further classified into various sub-categories. Funds are popular as “Balanced funds” suitable for a medium-term horizon and are ideal for investors who are looking for a mixture of safety, income and modest capital appreciation.  

TYPES OF FUNDS BASED ON INVESTMENT OBJECTIVE 

• INCOME FUNDS 

Income funds focus on generating a stable income for investors. These are debt funds invest their corpus in assets like government securities, certificate of deposits and corporate bonds also known as fixed income funds. These funds offer normally better return than banks fixed deposits and are considered relatively less risky vis-à-vis Equity funds. Funds are ideal for investors looking for steady income and a lower risk appetite. 

• GROWTH FUNDS 

Growth funds invest their corpus in different stocks with the objective of generating higher capital appreciation. The returns on equity funds are directly linked to market movements, such funds are classified in higher degree of risk. Funds are suitable for high risk investor or young investor; also popular to build your corpus for long term investment as the level of risk comes down over time. 

• TAX SAVING FUNDS  

Most popular funds among professionals also known as Equity linked Saving Scheme (ELSS). A special tax incentive is provided by government under Section 80C of Income Tax Act to promote Mutual Fund under this scheme. Investor can claim deductions up to Rs 1.5 lakhs each year on their invest in these funds.  

• LIQUID FUNDS 

As the name suggests, liquid funds are popular among corporates and HNI to park their liquid funds / short term liquidity to earn return. Liquid funds invest their corpus predominantly in highly liquid money market instruments like treasury bills (T-bills), commercial papers (CP), certificate of deposits (CDs) and collateralized lending and borrowing obligations (CBLO). Liquid funds provides a vehicle to part your surplus funds for a few days to a few months or create an emergency funds for specific purpose.