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Did You Know? Individual investors like you are driving growth of mutual funds in India. According to AMFI’s latest report categories like equity, hybrid and solution oriented schemes are booming due to increased participation from retail investors. It is exciting to see how individuals are shaping the mutual fund landscape, isn’t it?
But question you ask: What types of mutual funds are people investing in these days?
If you are curious or looking to start your own investment journey, this guide is here to help. We will break down the 4 types of mutual funds in India, making it easy for you to understand and choose ones that align with your financial goals. Let’s break down your options.
Different Types of Mutual Funds Schemes and Risk
When it comes to mutual funds, one size definitely doesn’t fit all. A young professional in their 20s or 30s might be all about chasing high returns over a long time while someone who is retired might prioritise steady income and preserving their nest egg. Different goals, different strategies right? That’s why understanding the risks and rewards of each mutual fund type is so important it is about finding the perfect match for your unique financial journey.
Equity oriented mutual funds are all about investing in company’s stocks across a mix of sectors. Think of them as your ticket to ride the waves of equity market aiming for high returns by tapping into its growth potential. These funds are perfect for those who have their eyes set on long term wealth building and are comfortable with a bit of risk along the way.
Did you know? In FY24 equity oriented mutual funds experienced a whopping 55% growth in assets, reaching at ₹23.50 lakh crore. That’s some serious growth, isn’t it?
But here is the best part within this broad category, there is something for everyone. Different types of equity mutual funds cater to diverse investor goals so you are bound to find one that fits your needs like a glove.
| Fund Category | Composition | Purpose | Risk Level |
|---|---|---|---|
|
Multi Cap Fund |
Minimum 75% in equity & equity related instruments |
Diversified investment across large, mid and small caps to manage risk and reward
|
Very High |
|
Flexi Cap Fund
|
Minimum 65% in equity & equity related instruments
|
Flexible allocation among large,mid and small caps based on market conditions
|
Very High |
|
Large Cap Fund
|
Minimum 80% in large cap stocks
|
Investment in established companies for stability and steady returns
|
Very High |
|
Large & Mid Cap Fund
|
At least 35% of your portfolio to large-cap stocks and another 35% to mid-cap stocks
|
Balanced exposure to stability of large caps and growth potential of midcaps
|
Very High |
|
Mid Cap Fund
|
Minimum 65% in mid cap stocks
|
Focus on mid sized companies with higher growth potential
|
Very High |
|
Small Cap Fund
|
Minimum 65% in small cap stocks
|
Investment in small companies with high growth potential but higher volatility
|
Very High |
|
Dividend Yield Fund
|
Primarily in dividend paying stocks, with at least 65% allocated to equities
|
Aims for regular income through dividends and capital appreciation
|
Very High |
|
Value Fund
|
At least 65% in equities following a value investment strategy
|
Choose undervalued companies with strong growth potential
|
Very High |
|
Contra Fund
|
At least 65% in equities following a contrarian strategy
|
Invest in stocks that are out of favor but have future growth prospects
|
Very High |
|
Focused Fund
|
Hold up to 30 stocks, with at least 65% in equity and related instruments
|
Concentrated investments in high conviction stocks for potentially higher returns |
Very High |
|
Sectoral or Thematic Fund
|
Allocate a minimum of 80% in a specific sector like Infrastructure, Banking, Pharma, or FMCG
|
Investment focused on specific sectors or themes expected to outperform the broader market
|
Very High |
|
ELSS
|
Ensure at least 80% of investments are in equities, in line with ELSS guidelines
|
Offers tax benefits under Section 80C with a 3year lock in period
|
Very High |
Debt mutual funds are like calm waters of the investment world. They focus on fixed income securities such as bonds, treasury bills and other debt instruments. To offer you steady income and preserve your capital,all while keeping risks lower compared to equity funds. If you are someone who values stability and regular income over chasing high returns, debt mutual funds could be just the thing for you.
Now, let’s talk numbers. In fiscal 2024, debt mutual funds saw decent growth rate of about 7% wrapping up the year with assets totaling ₹12.62 lakh crore. Among the different categories Money Market and Liquid Funds stole the spotlight with significant asset growth.
| Fund Category | Composition | Purpose | Risk Level |
|---|---|---|---|
|
Overnight Fund |
Invests in overnight securities maturing in 1 day
|
Ultra short term investments with high liquidity
|
Low |
|
Liquid Fund
|
Invests in debt and money market securities maturing within 91 days
|
Ensures short term liquidity with minimal risk
|
Moderate |
|
Ultra Short Duration Fund
|
Holds debt and money market instruments with portfolio duration of 3 to 6 months
|
Suitable for short term investments with slightly better returns than liquid funds
|
Moderate |
|
Low Duration Fund
|
Invests in debt and money market instruments with portfolio duration of 6 to 12 months
|
Balances liquidity and returns with lower risk
|
Low to Moderate |
|
Money Market Fund
|
Invests in money market instruments maturing within a year
|
Ideal for short term parking of funds with low risk
|
Low to Moderate |
|
Short Duration Fund
|
Holds debt and money market instruments with portfolio duration of 1 to 3 years
|
Designed for short term investments with moderate returns
|
Moderate |
|
Medium Duration Fund
|
Invests in debt and money market instruments with portfolio duration of 3 to 4 years
|
Suited for medium term goals with balanced risk and return
|
Moderate |
|
Medium to Long Duration Fund
|
Contains debt and money market instruments with portfolio duration of 4 to 7 years
|
Suitable for medium to long term investments aiming for higher returns
|
Moderate |
|
Long Duration Fund
|
Invests in debt and money market instruments with a portfolio duration over 7 years
|
Best for long term investments targeting higher returns
|
Moderate |
|
Dynamic Bond Fund
|
Adjusts investment duration dynamically based on market conditions
|
Offers flexibility to adapt to interest rate changes
|
Moderate |
|
Corporate Bond Fund
|
At least 80% invested in high quality corporate bonds (rated AA+ and above)
|
Provides steady returns with lower risk
|
Moderate |
|
Credit Risk Fund
|
Minimum 65% invested in lower rated corporate bonds (rated AA and below)
|
Higher potential returns with increased risk
|
High |
|
Banking and PSU Fund
|
At least 80% invested in debt securities issued by banks,PSUs and financial institutions
|
Ensures safe returns with low risk
|
Moderate |
|
Gilt Fund
|
At least 80% invested in government securities (G-secs)
|
Secure investments with moderate returns
|
Moderate |
|
Gilt Fund with 10Year Duration
|
Minimum 80% invested in government securities with a portfolio duration of 10 years
|
Longterm investments with stable returns
|
Moderate |
|
Floater Fund
|
At least 65% of the investment should be in floating rate instruments
|
Shields against interest rate fluctuations
|
Low to Moderate |
Hybrid funds are like best of both worlds for investors they combine equity and debt instruments to strike perfect balance between risk and return. Think of them as middle ground for those who want bit of everything growth potential of equities and the stability of debt. They are ideal for investors seeking moderate risk with potential for better returns than pure debt funds but without the rollercoaster ride of pure equity investments.
In fiscal 2024,hybrid funds made a splash by crossing the ₹7 lakh crore mark. That is massive growth of over 50% closing at ₹7.22 lakh crore.
Curious about what’s on offer? Check out the table below to explore the various types of hybrid funds available.
| Fund Category | Composition | Purpose | Risk Level |
|---|---|---|---|
|
Conservative Hybrid Fund |
10% to 25% in equity and related instruments,5% to 90% in debt instruments
|
Focuses on generating stable income with minimal equity exposure
|
High |
|
Balanced Hybrid Fund
|
40% to 60% in equity and related instruments,40% to 60% in debt instruments
|
Aims to provide balanced growth and income
|
Moderately High |
|
Aggressive Hybrid Fund
|
65% to 80% in equity and related instruments,20% to 35% in debt instruments |
Targets higher returns with significant equity allocation, maintaining some debt stability |
Very High |
|
Dynamic Asset Allocation Fund
|
Adjusts allocation dynamically between equity and debt based on market trends
|
Offers flexibility to move between asset classes depending on market conditions
|
Very High |
|
Multi Asset Allocation Fund
|
Invests in a minimum of three asset classes,with at least 10% in each
|
Provides diversification by spreading investments across multiple asset categories
|
Very High |
|
Arbitrage Fund
|
At least 65% in equity and related instruments,leveraging arbitrage opportunities |
Utilizes low-risk strategies to take advantage of market price differences |
Low |
|
Equity Savings Fund
|
Minimum 65% in equity,10% in debt and derivatives for hedging purposes |
Strikes a balance between equity growth and debt stability |
Moderately High |
Looking for simple, hands off way to invest in the market? Passive funds might be just what you need. These funds aim to replicate the performance of popular indices like Nifty 50 by holding same securities as the index. Think of it as mirroring market without the hefty price offering broad exposure at minimal fees.
Passive funds are perfect for investors who want to set it and forget it without the stress of constantly tweaking their portfolios.
Fast forward to fiscal 2024 and passive funds are having their moment. Institutional players like provident funds are pouring money into Exchange Traded Funds or ETFs pushing their popularity to new heights. Infact ETFs alone now boast assets worth a staggering ₹6.64 lakh crore. That’s a lot of faith in the power of passive investing.
To help you explore your options here is a handy table that breaks down the various passive funds available.
| Fund Category | Composition | Purpose | Risk Level |
|---|---|---|---|
|
Index Funds |
Replicates the performance of a specific index by investing in all or a representative sample of its securities.
|
Affordable market tracking
|
Very High |
|
Gold ETF
|
Allocates funds to gold or securities linked to gold to mirror gold’s price movement.
|
Protects against inflation
|
High |
|
Fund of Funds (Overseas)
|
Diversifies by investing in various international mutual funds, offering access to global markets.
|
Achieves diversification globally |
Very High |
Conclusion
Know you understand 4 types of mutual funds. Mutual funds offer something for everyone whether you are after the high returns with equity funds, the stability of debt funds or the balanced strategy of hybrid funds. The growing popularity of passive funds and ETFs only adds to the list of options, catering to hands off investors who value simplicity and cost effectiveness.
At the end,right mutual fund depends on your financial goals, risk tolerance and investment horizon. By understanding your needs and exploring the diverse options available, you can build a portfolio that works for you whether you’re saving for the future or aiming to grow your wealth.
Happy investing and thank you for reading!
Disclaimer:
This website content is only for educational purposes, not investment advice. Before making any investment, it’s important to do your own research and be fully informed. Investing in the stock market includes risks, and you should carefully read the Risk Disclosure documents before proceeding. Please remember that past performance doesn’t guarantee future results, and due to market fluctuations, your investment goals may not always be achieved.
