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Types of Mutual Funds in India

Most of the time, we are inundated with doubts related to Mutual Funds. "Where do you wish to invest? What is your capacity for taking a risk? When do you want to redeem your investments?" These are three fundamental questions that can determine the types of mutual funds which suit your investment needs.

Mutual Funds can be divided into various types based on their organisational structure, investment style and asset class.

Here's a detailed approach to mutual funds in these three categories:

Open-ended, Closed-ended and Interval Funds

Would you like to enter or exit a scheme anytime you want? Or, you would like to stay invested for a predetermined period?

  • Open-ended funds allow you to invest without any lock-in time frame. Therefore, you can redeem your investments anytime you wish to without any penalty. You can buy these funds even after the New Fund Offering (NFO) investment period has been closed.

    One of the popular examples of open-ended mutual funds is Liquid funds.

  • Closed-ended mutual funds, on the other hand, have a predetermined lock-in time. You can invest in these funds only during their NFO period, or buy them directly from the stock exchange.

  • Those who want the best of both worlds (open-ended and closed-ended), can invest in interval funds. These funds broadly fall under the closed-ended category but become open-ended for a pre-specified period.

Passively Managed and Actively Managed Funds

  • Passive Funds like index funds mirror the benchmark indices like SENSEX and Nifty. Therefore, active fund management is not required for passive funds.

  • In actively managed funds, you get the flexibility to choose, manage and rearrange your portfolio. Based on your broad investment objective, your fund manager can select funds that can beat market returns.

Equity, Debt, Hybrid and Gold Funds

Investing in shares might sound intimidating, but they enable you to get returns that beat inflation. Similarly, debt investments may seem comforting as they are free from short-term market volatility.

  1. Equity funds primarily invest in shares and other related investments like debentures. These funds aim at high returns but also add a considerable amount of risk to your portfolio. ELSS(Equity Linked Savings Scheme), Diversified Equity Funds and Sector Funds are examples of equity funds.

  2. Funds that are limited to assets such as cash, bonds, government securities, non-convertible debentures and treasury bills are called debt or income funds. These funds are characterised by their low market risk, but you still face the risk of inflation. Liquid funds and Fixed Maturity Plans (FMPs) are examples of debt funds.

  3. balance the high returns of equities with the low risk of debt. Balanced funds, Monthly Income Plans (MIP) are examples of hybrid funds.

  4. With all these options, if you still wish to invest in gold, then mutual funds allow you to do that as well. Mutual Funds like Gold Exchange Traded Funds or Gold ETF, Gold Savings Funds and Gold Sector Funds will enable you to invest in non-physical units of gold. These funds overcome the limitations of investing in physical gold (freeing you from the expense of making charges and variations in the quality of gold being sold) and can provide returns over and above inflation.

These are the types of mutual funds you can invest in, and each of these types of funds is available through FundzPark. Sign-in to or download the FundzPark app through Play Store to pick the best funds for you with which to enter the world of mutual fund investments.

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