Types of mutual funds – Equity funds; Debt funds; Money market funds; Index funds; Balanced funds; Income funds; Fund of funds; Specialty funds. There are several other types also like money market funds, fixed income funds, equity funds, balanced funds, index funds and real estate funds.
Large Cap Funds
Large-cap mutual funds are equity funds that invest primarily in the top 100 companies of India. These companies are some of the biggest brands in our country, and most Indians use their products daily.
- Invest and get exposure to companies which are household names
- Customer loyalty and sustainable business means these companies generate profit consistently
- Ideal for goals which are at least 5 years away
Mid Cap Mutual Funds
Mid Cap Mutual Funds are equity funds that invest in the mid-sized companies of India. The companies are some of the fastest-growing companies in India and are at a stage today’s leaders were a few years back.
- Access to high-growth stocks that can give market-beating returns
- The smaller size makes them more likely to falter during tough market conditions
- Suitable for aggressive investors with 7+ year investment horizon
Small Cap Mutual Funds
Small-Cap equity funds invest in the smallest companies in India. These companies are beyond the top 250 companies and are mostly unheard of in our daily lives. While they can deliver fantastic returns, small-cap companies are incredibly volatile, and you can see losses in the short to medium term
- Benefit from investing early in companies that can be top businesses of future
- Exposure to high risk due to lack of financial strength to withstand tough market conditions
- Ideal for very aggressive investors with a 7+ year investment horizon.
Multi & Flexi Cap Mutual Funds
Multi cap equity funds invest in companies of all sizes and across sectors. Unlike large or mid cap funds, they can decide how money gets allocated between big, mid-sized, and small companies. This flexibility also allows them to make changes in the portfolio as market conditions change.
- Exposure to all key sectors driving the Indian economy forward
- Ideal for an investment horizon of 5+ year
- Eliminates the need for buying different funds for comprehensive market coverage.
Debt Mutual Funds
Debt funds generate returns by lending money to corporates and the government by buying their debt papers. These funds are classified into different categories based on the lending period and credit quality of the papers.
Types of Debt funds:
Money Market Funds are debt funds that lend to companies for a period of up to 1 year. These Funds are designed in a manner that allows the fund manager to generate higher returns while keeping risk under control through adjustment of lending duration. Higher loan tenure usually comes with higher returns.
- Ideal for an investment horizon of at least 3-6months
- Low chances of loss if someone stays invested for 6+ months
- These schemes tend to give better returns than Bank Fixed Deposits of similar duration
Money Market Funds are debt funds that lend to companies for a period of up to 1 year. These Funds are designed in a manner that allows the fund manager to generate higher returns while keeping risk under control through adjustment of lending duration. Higher loan tenure usually comes with higher returns.
- Ideal for an investment horizon of at least 3-6months
- Low chances of loss if someone stays invested for 6+ months
- These schemes tend to give better returns than Bank Fixed Deposits of similar duration
Overnight funds are debt funds that lend to corporates for 1 business day. The corporates eligible for borrowing through this route are regulated and are mostly banks, insurance companies, mutual funds, provident funds, and NBFCs
- Safest debt funds which can be used for parking money for few days
- No risk of default as borrowers needed to give prescribed securities as collateral
- Zero-risk means you have to settle for low returns
Liquid funds are debt funds that lend to companies for a period of up to 91 days. These are the safest funds amongst all the mutual fund categories, owing to their extremely low lending duration.
- Suitable for putting money aside for emergencies
- Near zero risk of loss if someone invests for at least one month
- Have given up to 50% to even at times 100% higher returns than the savings bank account
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