Mutual Funds And Its Types

Whenever one searches for the easiest way to invest, the first answer comes to mutual funds. Even the government of the country always asks us to invest in mutual funds, but for many mutual funds still remains confusing. So, in this article, we will go through all definition of mutual funds and its types.

What is Mutual Funds?

Money borrowed from many people is called mutual fund. Through this, Asset Management Company (AMC) invests your money professionally and returns the money to you with interest. AMC is a firm, which is authorized to manage the money of Mutual Funds. There are many AMCs in the country such as SBI mutual fund, ICICI Prudential, Motilal Oswal.

The concept of mutual fund is clear, now it's time to look at its types with details.

Types of Mutual Funds

There are many types of mutual funds. Firstly, let's have a look at some of the main types, then we will understand them in detail-

There are three types of Mutual Funds according to the Assets Class

Equity mutual fund

Debt mutual fund

Hybrid mutual fund

According to the structure, there are mainly two types-

Open Ended Fund

Closed Ended Fund

According to the fund management, there are two types of Mutual Funds-

Actively Managed Fund

Passively Managed Fund

There are also many other types of Mutual Funds like-

International Fund

Real Estate Fund

Gold Fund

Exchange Trader Fund

To understand in detail, we first start with the types of Mutual Funds according to the Asset Class-

As we mentioned above that there are three types of Mutual Funds in terms of Assets Class – Equity Mutual Fund, Debt Mutual Fund, Hybrid Mutual Fund.

Equity Mutual Fund- Mutual Funds that invest in Equity are called Equity Mutual Funds. In this, all the money is invested in the stock market. There are also many types of this mutual fund such as Large Cap Fund, Mid Cap Fund Small Cap, Fund Sector Fund, Diversify Equity Fund, Dividend Yield Scheme, Equity Linked Saving Scheme (ELSS) and Thematic Fund.

Debt Fund-Funds which invest in Debt Instruments like Denture, Bond, Certificate of Deposit are called Debt Instrument Fund. Government or company borrow money through Debt Instrument and then return that money with interest. In this the risk is less than equity fund and the returns are also less.

The Debt funds are also of four types such as Gilt Fund, Junk Bond Scheme, Fixed Maturity Plans, Liquid scheme debt fund.

Hybrid Fund- The fund which is invested in equity as well as in debt are known as Hybrid fund. The Hybrid fund is of three types such as Monthly Income Plan (MIP), Balanced fund and Arbitrage fund.\

Now, lets us understand structure base mutual funds.

Open ended fund-Most of the Mutual Fund Schemes are open ended and you can buy & sell this fund anytime. Open Ended Fund can issue any number of units.

Close ended fund-Very few Mutual Funds are Close Ended Funds, in which funds come with a fixed number of units. You cannot buy & sell this fund all the time. You can invest in this fund only when this fund comes out with its New Fund Offer (NFO).

As mentioned above, there are two types of fund manage based mutual funds

Actively Managed Fund-In this, all the decisions related to the investment of the fund are taken by the manager of that fund. The fund manager works actively in this fund. Like- which stocks to invest in? How to invest in the fund? All these things are decided by the fund manager.

Passively Managed Fund-The investment in this fund is not managed through the fund manager. In this, funds are made in any index- Sensex or nifty and its returns also depend on the index.

Also read:Top 5 Tax Saving Mutual Funds To Invest

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