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Retail investors are now playing a major role in the growth of India’s mutual fund industry. As per AMFI data, categories like equity funds, hybrid funds, and solution-oriented schemes are seeing strong inflows from individual investors.
This makes one question important, what types of mutual funds in India, are investors choosing, and which ones suit your goals? To help you decide, this blog explains 4 types of mutual funds in India, so you can choose the right category based on your risk profile and investment objective.
Different Types of Mutual Funds Schemes and Risk
When it comes to select a best 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 important for your unique financial journey.
Equity oriented mutual funds invest primarily in company stocks across different sectors. These funds allow you to participate in the equity market’s growth potential and aim for higher long-term returns. These funds suit investors focused on building wealth over time and who are comfortable with market-linked risk.
Within this category, you’ll find multiple types of equity mutual funds designed for different goals and risk levels, making it easier to choose one that matches your investment needs.
Lets find out types of equity mutual funds below:
| 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 |
This is another types of mutual funds. Debt mutual funds invest in fixed-income instruments such as bonds, treasury bills and other debt securities. Their primary goal is to provide stable returns, regular income, and capital preservation with lower risk compared to equity funds. These funds are suitable for investors who prefer stability over high return chasing.
Here are types of debt mutual funds:
| 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 invest in a mix of equity and debt instruments to create a balanced risk–return profile. These funds offer growth potential of equities along with stability of debt, making them a suitable option for investors seeking moderate risk with steadier returns than pure equity funds and better performance potential than pure debt funds.
Below is a table that highlights the different 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 |
Passive funds offer a simple way to invest in the market. These funds aim to replicate the performance of a chosen index such as Nifty 50, by holding the same securities in the same proportion. They mirror the market and provide broad exposure at low cost, without the frequent decision-making involved in active management.
Passive funds suit investors who prefer a “set it and leave it” approach without the need to constantly adjust their portfolios.
Below is a table that highlights the different types of 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 |
Final Words
Know you understand 4 types of mutual funds in India. 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, top mutual fund in India, depends on your financial goals, risk tolerance and investment horizon.
FAQs on On Types of Mutual Funds in India
What are the main types of mutual funds in India?
India has 4 major mutual fund types like Equity Funds, Debt Funds, Hybrid Funds and Solution-Oriented Funds. There are others also each category fits different goals, risk levels, and time horizons.
Which type of mutual fund is best for beginners?
Beginners prefer Hybrid Funds or Index Funds because they offer diversification, lower volatility and simple structure. They balance risk and returns, making them easier to start with.
Which mutual fund type is best for long-term investment?
For long-term goals, Equity Mutual Funds especially large-cap, flexi-cap or index funds work well because they offer higher growth potential over longer time horizons.
Which type of mutual fund is safest?
Debt Mutual Funds, particularly Liquid, Overnight and Money Market Funds, are considered safer as they invest in fixed-income securities and carry lower market risk.
How do I choose the right type of mutual fund?
Choose based on your goal, risk tolerance and time horizon. Equity suits growth, debt suits stability, hybrid suits balanced needs, and solution-oriented funds suit long-term plans like retirement.
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.
