Types Of Mutual Funds In India In Easy Language

Do you know, there are more than 36 schemes or types of Mutual Funds in India, that are divided into 5 broad categories.

When it comes to doing investment in Mutual Fund, the biggest hurdle that comes in our way is of selecting the right scheme from so many types Of Mutual Funds available to invest in.

There are so many types Of Mutual Funds In India, that without having a sound and basic knowledge of different schemes available, we can fall into a trap.

It is very important to know the basic understanding of types of mutual funds, before making any investment.

In this article, I had discussed each and every scheme available and explained them to you in the simplest manner possible.

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Types Of Mutual Funds In India

SEBI ( Security Exchange Board Of India ), had classified types Of Mutual Funds in India into 5 Broad categories.

  • Equity Schemes
  • Debt Schemes
  • Hybrid Schemes
  • Solution-Oriented Schemes
  • Other Schemes

Each of these schemes is further categorized. Let us understand each, one by one.

Equity Schemes

An Equity scheme or fund is the type of mutual funds scheme, that predominately invests in shares or stocks of the company.

Equity Schemes are also known as Growth Schemes Or Fund.

There is one more concept that you need to understand, before moving to understand different types of Equity schemes. The concept of Market Capitalization.

It is simple to understand, every company that is traded on the stock market, have market capitalization.

There is a very simple formula, to calculate it:

Market Capitalization Of Company XYZ = Value of one share of company XYZ multiplied by Total no of shares of the company XYZ

SEBI classifies companies into 3 categories on the basis of Market Capitalization.

Large Cap Company – Companies ranked between 1 and 100 by full market capitalization.

Mid Cap Company – Companies ranked between 101 and 250 by full market capitalisation.

Small-Cap Company – Companies ranked above 250 by full market capitalization.

Now that we are clear with the basic concept, let us move to understand different types of Equity Schemes.

There are 10 types of Mutual Funds Schemes in India, that fall under the category of Equity Schemes.

Types Of Mutual Funds Under Equity Scheme

  • Large Cap Fund
  • Mid Cap Fund
  • Small Cap Fund
  • Multi-Cap Fund
  • Large Cap & Mid Cap Fund
  • Value/Contra Fund
  • Sector/Thematic Fund
  • Focused Fund
  • Dividend Yield Fund
  • ELSS

Large Cap Fund

In the Large Cap Fund, Minimum 80% of the total money is invested in the equity of Large Cap companies.

According to SEBI, Large Cap companies are those companies that rank from 1 to 100 by full Market Capitalization.

Mid Cap Fund

In the Mid Cap Fund, Minimum 65% of the total money is invested in buying the equity of Mid Cap companies.

According to SEBI, Mid-cap companies are those companies that ranked from 101 to 250 by full market capitalization.

Small Cap Fund

In the Small Cap Fund, Minimum 65% of the total money is invested in buying the equity of Small-Cap Companies.

According to SEBI, Small-cap companies are those companies that ranked above 250 by full market capitalization.

Multi-Cap Fund

In the Multi-Cap Fund, Minimum 65% of the total money is invested in buying the equity of the companies, irrespective of their Market Capitalization.

Large Cap & Mid Cap Fund

In the Large Cap & Mid Cap Fund, Minimum 35% of the total money is invested in the equity of Large Cap companies &, Minimumum 35% of the total money is invested in the equity of the Mid Cap companies as well.

Value/Contra Fund

In the Value/Contra Fund, Minimum 65% of the total money is invested in buying the equity of undervalued companies

In Value/Contra Fund, value investing strategies is followed.

Sector/Thematic Fund

In the Sector/Thematic Fund, Minimum 80% of the total money is invested in buying the equity of companies in a particular sector or industry.

Focused Fund

In the Focused Fund, Minimum 65% of the total money is invested in buying equity of the limited number of companies.

According to the Guidelines issued by SEBI, In Focused Fund, stocks of only limited companies can be held, ( Maximum – 30 ).

Dividend Yield Fund

In the Dividend Yield Fund, Minimum 65% of the total money is invested in buying equity of dividend yielding companies.

ELSS

ELSS is an acronym that stands for Equity Linked Saving Scheme. Minimum 80% of the total money is invested in equity, to generate high returns.

ELSS has an lock-in period of minimum 3 years.

According to section 80 C of the Income Tax Act, investment of up to 1.5 lakhs in ELSS is eligible for deduction from Taxable income in the financial year.

Now that, we have got a clear understanding of different types of Equity schemes. Let us understand the different types of Debt Schemes.

Debt Schemes

A Debt Scheme is a type of Mutual Fund scheme that invests in fixed income instruments, such as:

  • Corporate Bond
  • Government Bond
  • Corporate Debt Securities
  • Money Market Instruments

Debt Schemes are also referred as Bond Schemes.

The Fundamental Rule, you should know before investing in Debt Schemes is that Longer is the duration of the fund, higher will be the Return & Risk of that particular Fund.

There are 16 types of Mutual Funds Schemes in India, that fall under the categories of Debt Schemes.

Types Of Mutual Funds Under Debt Schemes

  • Low Duration Fund
  • Long Duration Fund
  • Medium Duration Fund
  • Short Duration Fund
  • Medium to Long Duration Fund
  • Ultra Short Duration Fund
  • Liquid Fund
  • Overnight Fund
  • Money Market Fund
  • Corporate Bond Fund
  • Dynamic Bond Fund
  • Banking & PSU Fund
  • Credit Risk Fund
  • Floater Fund
  • Gilt Fund
  • Gilt Fund with 10-year Constant Duration

Low Duration Fund

In the Low Duration Fund, the money is invested in short term Debt Securities, There is no restriction or rule to invest in any particular class of Debt assets.

According to SEBI, Low Duration Fund should have a duration between 6 – 12 months.

Interest rate – Low

Risk – Low

Long Duration Fund

In the Long Duration Fund, the money is invested in Long Term Debt Securities. There is no restriction or rule to invest in any particular class of Debt assets.

According to SEBI, Long Duration Fund should have a duration of more than 7 years.

Interest Rate – High

Risk – High

Medium Duration Fund

In the Medium Duration Fund, the money is invested in Medium Term Debt Securities. There is no restriction or rule to invest in any particular class of Debt assets.

According to SEBI, Medium Duration Fund should have a duration between 3 to 4 years.

Interest Rate – Moderate

Risk – Moderate

Short Duration Fund

In the Short Duration Fund, the money is invested in Short Term Debt Securities. There is no restriction or rule to invest in any particular class of Debt assets.

According to SEBI, Short Duration Fund should have a duration between 1 to 3 years.

Interest Rate – Low

Risk – Low

Medium to Long Duration Fund

In the Medium to Long Duration Fund, the money is invested in mid-lengthen Term Debt Securities. There is no restriction or rule to invest in any particular class of Debt assets.

According to SEBI, Medium to Long Duration Fund should have a duration between 4 to 7 years.

Interest Rate – Average

Risk – High

Ultra Short Duration Fund

In the Ultra Short Duration Fund, the money is invested in a very short class of Debt Securities. There is no restriction or rule to invest in any particular class of Debt assets.

According to SEBI, the Ultra Short Duration Fund should have a duration between 3 to 6 months.

Interest Rate – Low

Risk – Low

Liquid Fund

In the Liquid Fund, the money is invested in money market instruments.

According to SEBI, the Liquid Fund should have a duration of 91 days.

Interest Rate – Moderate

Risk – Low

Overnight Fund

In the Overnight Fund, the money is invested in overnight securities. They are considered to be safest among all debt schemes.

According to SEBI, the Overnight Fund have a duration of only a day.

Interest Rate – Very Low

Risk – Nil

Money Market Fund

In the Money Market Fund, the money is invested in short term Debt securities.

According to SEBI, the Money Market Fund have a duration of 1 year.

Interest Rate – Low

Risk – Low

Corporate Bond Fund

In the Corporate Bond Fund, the money is invested in very high rated bond issued by companies.

According to SEBI, the Corporate Bond Fund have a duration between 1 to 4 years.

Interest Rate – High

Risk – Low

Dynamic Bond Fund

Dynamic Bond Fund, is little difficult to understand. But to put it simply, the money in invested in debt security and the return is generated by price fluctuation in the market.

Interest Rate – Very High

Risk – High

Banking & PSU Fund

In the Banking & PSU Fund, Minimum 80% of the money is invested in the debt securities of different banks and various public sector companies.

Interest Rate – Moderate

Risk – Low

Credit Risk Fund

In the Credit Risk Fund, Minimum 65% of the money is invested in medium rated corporate bond.

Interest rate – High

Risk – Moderate

Floater Fund

In the Floater Fund, Minimum 65% of the total money is invested in debt instruments, in which interest rate fluctuates over time.

Interest Rate – Variable

Risk – High

Gilt Fund

In the Gilt Fund,Minimum 80% of the total money is invested in the securities, issued by government.

Interest Rate – Moderate

Risk – Very Low

Gilt Fund with 10-year Constant Duration

It is same as Gilt Fund, the only difference is, it has a lock-in period of 10 years.

Hybrid Schemes

Now, we had learned Debt and Equity Schemes, it is time to understand Hybrid Scheme.

In Hybrid Schemes, the money is invested in both Equities as well as Debt Securities. Every scheme that falls under the category of Hybrid Scheme, is differed by just the proportion in Equity & Debt Securities.

Hybrid schemes are categorized into 7 types:

  • Balance Hybrid Fund
  • Equity Savings
  • Conservative Hybrid Fund
  • Aggressive Hybrid Fund
  • Dynamic Asset Allocation or Balanced Advantage Fund
  • Multi-Asset Allocation Fund
  • Arbitrage Fund

Now, let us understand each one by one.

There are 7 types of mutual funds scheme that fall under the category of Hybrid Scheme.

Types Of Mutual Funds Under Hybrid Schemes

Balance Hybrid Fund

In the Balance Hybrid Fund, the proportion of investment in equity and debt securities is:

Equity – Between 40% to 60%

Debt Securities – Between 40% to 60%

Equity Savings

In Equity Saving, the proportion of investment in equity and debt securities is:

Equity – Min 65%

Debt Securities – Min 10%

Conservative Hybrid Fund

In Conservative Hybrid Fund, the proportion of investment in equity and debt securities is:

Equity – Between 10% to 25%

Debt Securities – Between 75% to 90%

Aggressive Hybrid Fund

In Aggressive Hybrid Fund, the proportion of investment in equity and debt securities is:

Equity – Between 65% to 80%

Debt Securities – Between 20% to 35%

Dynamic Asset Allocation or Balanced Advantage Fund

In Dynamic Asset Allocation or Balanced Advantage Fund, the proportion of investment in equity and debt securities is:

The investment between Equity and Debt Schemes vary according to market conditions.

Multi-Asset Allocation Fund

In Multi-Asset Allocation Fund, the proportion of investment in equity and debt securities is:

Minimum 10% of total fund should be invested in three different asset class that is:

  • Equity
  • Debt Securities
  • One from Gold, silver, Real estate, etc.

Arbitrage Fund

In Arbitrage Fund, Minimum 65% of the total money should be invested in equity.

Solution-Oriented Schemes

Solution Oriented Schemes are very specific to a particular goal.

The people, who invest in this scheme, have a particular goal in the mind, according to which they invest.

Solution Oriented Schemes are classified Into 2 Types:

  • Children Fund
  • Retirement Fund

Types Of Mutual Funds Under Solution Oriented Schemes

Children Fund

It is a specific Mutual Fund, that focus on goals related to children, like: education & marriage.

This Fund has a minimum lock-in period of five years or till the child attains maturity. It depends upon company to company.

Retirement Fund

In retirement Fund, generally the goal of the people who invest in this fund is to plan for their retirement.

This Fund has a minimum lock-in period of five years or till the Retirement age. It depends upon company to company.

Other Schemes

There are only 2 types of Mutual Fund schemes that come under this category:

  • Index Fund
  • Funds Of Funds

Types Of Mutual Funds Under Other Schemes

Index Fund

In Index Fund, 95% of the total money is invested in the index of a particular exchange.

There is no minimum duration or period.

Funds Of Funds

They are generally known as ( FOF ), Under this money is invested in existing fund.

There is no minimum duration or period.

Additional Resources

I really hope, you liked this Article On Types Of Mutual Funds

Now, I would like to know from you, which fund you are planning to invest in.

Comment Below

This Post Has 3 Comments

  1. Anil

    Nice and Informative Article.

  2. Lagan Marwah

    Informative article

  3. Mufaddal

    Every aspects covered.

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