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The number of mutual fund investors in India has increased with its growing popularity. A large range of investors find mutual funds attractive as they offer a diversified and professionally managed portfolio of securities, making it easier for individuals to access the financial markets and reap returns. Let's see the various types of mutual funds available in India.
Different Types Of Mutual Funds In India
The types of mutual funds in India are as follows:
● Equity Mutual Funds
In general, equity mutual funds are invested in stocks or equities. The focus of these funds is to get capital appreciation from a broadly diversified portfolio. Equity mutual funds are helpful as they offer professional management, portfolio diversification and liquidity.
● Debt Mutual Funds
Debt mutual funds primarily invest in fixed-income securities like bonds, government securities, and money market instruments. These offer a constant yield and are ideal for investors who want to receive regular income. Mostly, debt funds are perceived as less risky than equity funds.
● Hybrid Mutual Funds
Hybrid mutual funds, also known as balanced funds, combine equity and debt investments and balance each other. They are hybrid assets that combine the advantages of both asset classes, aiming at both capital appreciation and income generation. The management of risk in hybrid funds is done using varied approaches.
● Index Funds
Index funds are a type of passive investment that aims to replicate the performance of a specific market index, such as the Nifty 50 or Sensex. Through Index Funds, investors get a chance to participate in the broader market's growth. These funds require minimum active management, making it ideal for a longer-term investor.
● Sectoral Mutual Funds
Sectoral mutual funds focus their investments on specific sectors of the economy, such as technology, healthcare, or banking. These funds are ideal for investors who have bullish tendencies as they offer high returns if the chosen sector performs well but carries high risk.
● Tax-Saving Mutual Funds (ELSS)
Equity-Linked Savings Schemes (ELSS) are a type of equity mutual fund with double benefits. They not only offer potential capital appreciation but ELSS funds are eligible for a tax deduction of up to Rs 1.5 lakh under sections of the Income Tax Act.
● Liquid Mutual Funds
Liquid mutual funds are best for investors looking for high liquidity and safety of capital. The funds are primarily invested in short-term debt securities and money market instruments, making them an ideal choice for making surplus funds. Investors use liquid funds to park their money temporarily, as it is easily accessible when needed.
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Classification of Mutual Funds
Types of Mutual funds can be classified based on an array of criteria, including their structure, asset class, investment goals, and risk.
Structure of Mutual Funds
There are different types of mutual funds in India, such as open-ended funds, close-ended funds and interval funds. Despite all the differences in structures, each of them possesses unique traits that are beneficial for the diverse needs and goals of the investors.
Mutual Fund Asset Classes
Equity funds, debt funds, hybrid funds, solution-oriented funds, and other specialised categories are the classes within mutual funds. Every class investor provides users with access to specific asset categories, having different risk-return profiles.
Mutual Funds Based on Investment Goals
Mutual funds are mostly chosen by investors depending on their financial goals. These include growth funds, ELSS, liquidity-based funds, short-term funds, and retirement funds. To achieve financial success, ensure your investments are made according to your goals.
Risk Appetite and Risk-o-Meter
When choosing mutual funds, understanding your risk appetite is essential. One such instrument for an investor is a risk-o-meter provided by mutual fund houses which can be used in gauging the risk associated with a particular fund. It is important to align risk tolerance to expected gains.
Specialised Mutual Funds
The area of specialised mutual funds involves numerous groups including sector funds, index funds, emerging market funds, foreign funds, global funds, commodity-focused stock funds, market-neutral funds, leveraged funds, asset allocation funds, and gift funds. Each of these categories serves a unique purpose and is suitable for specific investment methods and preferences.
How to Invest in Mutual Funds?
Compared to other countries, investing in mutual funds in India is simple. Mutual funds are bought and sold by investors via asset management firms and regulated agents. One should be above the age limit of 18 years and also possess a PAN card for identification to invest in mutual funds.
Frequently Asked Questions (FAQs)
Q: Can NRIs Invest in Indian Mutual Funds?
Yes, a Non-Resident Indian can invest in mutual funds. By setting up an account under the Foreign Exchange Management Act (FEMA), NRIs can invest in mutual funds.
Q: What is the Minimum Investment Amount?
Although the minimum investment amount for a mutual fund varies for different funds, it starts from ₹100. There are many mutual funds with higher minimum investment requirements.
Q: Are Mutual Funds Better than Fixed Deposits?
Q: How does an investor buy and sell mutual funds?
An investor can buy or sell mutual funds through registered asset management firms and regulated agents. There are certain requirements one should meet to be able to invest in mutual funds.
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