Types of Mutual Fund

Are you overwhelmed by the amount of information around Mutual Fund Investments? And confused about the different types of mutual fund schemes? Here’s a blog simplifying the process by listing out all the different types of mutual funds!

Mutual Funds can be of different types: 

Equity mutual funds, debt mutual funds, hybrid mutual funds, open-ended mutual funds, close ended mutual funds, ELSS, Growth Funds, Liquid Funds, Gold Funds and many more.

What are Mutual Funds?

A Mutual Fund pools money from various investors and puts these funds into different assets such as equity, debt, gold, etc., depending on the specific scheme chosen by the investor. It is professionally managed and monitored by a fund manager whose goal is to generate returns for the investors. 

Types of Mutual Fund

There are different types of Mutual Funds and they can be classified into 4 mutual fund categories, i.e. MFs based on structure, asset class, risk appetite and investment objective.

1. Types of Mutual Fund based on Structure

• Open-Ended –

Open-ended mutual funds are those funds that can be bought or sold at any time. They don’t have a defined maturity period and there are no restrictions on how many units you can purchase and when you can sell them.

• Close-Ended –

Close-ended mutual funds are those funds that have a fixed maturity period. They cannot be redeemed before a specified date, however similar to stocks, they can be traded on the stock exchange.

2. Types of Mutual Fund based on Asset Class

• Equity Funds –

These mutual funds invest the pooled money from investors primarily in stocks of different companies. Their performance relies on how the prices of these stocks perform on the share market. Compared to other investment options, equity involves a higher amount of risk, however, it’s a long-term asset class where the risk is mitigated when you allow time for your money to grow and aim at generating inflation-beating returns.

• Debt Funds –

Debt funds tend to invest in fixed-income instruments such as corporate and government bonds and money market instruments. These are suitable for your short-term goal (less than 3 years) and are an essential part of the overall asset allocation of the investor.

• Gold Funds –

Gold Mutual Funds are mutual funds that invest in gold and different gold-related assets including Gold ETFs on your behalf. They act as a hedge against inflation and allow investors to buy gold without the involvement of various charges like making/design costs, GST charges, storage costs, insurance costs, or risk of theft.

Explore Lxme’s Rs. 100 Equity, Debt and Gold Funds to begin your money journey today!

• Hybrid Funds –

Hybrid Funds are a combination of funds of different asset classes, typically debt and equity. They balance and diversify your portfolio by distributing the risk and return.

3. Types of Mutual Fund based on Risk appetite

• High Risk –

These funds have a very high risk factor. These are suitable for long term goals, where investors invest with a long-term perspective and aim to earn inflation-beating returns. When investing in these funds, it’s important to diversify your portfolio with lower risk investments as well.

• Medium Risk –

These funds are moderately risky and typically involve a mix of equity and debt funds. It aims to balance between risk and return and is suitable for investors who want to achieve their long-term goals while taking moderate risk.

• Low Risk –

These funds are comparatively less risky than other funds and normally invest in instruments that have a maturity period of less than a year. They are liquid funds and can be redeemed easily and hence, are suited for an investor’s short term goals. However, they are unlikely to beat the inflation rate in the long term so diversification is key.

4. Types of Mutual Fund based on Investment Objective

• ELSS –

Equity Linked Savings Scheme (ELSS) is a tax-saving mutual fund that allows you to claim a deduction of up to Rs. 1.5 Lakhs under section 80C under income tax. They have a lock-in period of 3 years. It gives women the dual benefit of tax savings along with wealth creation.

Invest in ELSS by investing in Lxme’s Tax Savings Plan!

• Growth Fund –

These funds invest in companies with high growth potential. The purpose of these funds is wealth creation for their investors. As a result, their risk factor is high and they are typically recommended for the long term.

• Liquid Fund –

They are debt funds that aim to give steady returns to its investors and allow them to withdraw their money instantly. It’s suitable for investors who want to park their excess funds and earn potential returns better than that offered on bank deposits.

Check out Lxme’s Gulluck Fund today!

In conclusion, while there is a wide variety of mutual funds available for investors, women should always assess their financial goals, risk tolerance and time horizon before making an investment decision. It’s also essential to diversify your portfolio across asset classes to manage the risks and optimize the returns.

“The goal isn’t more money. The goal is living life on your terms.” 

– Chris Brogan

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