Markets are closed for weekend.

Create an Account

Its Free and always will be!

Sign up or login with your social accounts
Birthday
Day

Everything about Types of Mutual Funds

What is a Mutual Fund?

The institution of mutual funds was established centuries ago during the voyages of Dutch East India Company on the way to India and other colonies. It became popular owing its profile as relatively safer investment. Nowadays there are thousands of mutual funds managed by different AMCs such as Tata Mutual funds, HDFC Mutual Fund and so on. Because of its soaring popularity, Securities and Exchange Board of India(SEBI) recently stepped in and reorganized the categories of mutual funds. SEBI is the regulatory body that oversees all the exchanges and transactions that take place in stock exchanges in India

In 2017, SEBI issued a circular clearly stating the new categorization of mutual funds with the definitions of each mutual fund listed. We will try to explain the SEBI circular here so it is easier for you to understand.

What are the categories of Mutual Funds?

SEBI came up with five umbrella categories that all types of mutual funds in India would fall under. These are Equity Schemes, Debt Schemes, Hybrid Schemes, Solution Oriented Schemes and others.

  • Equity Schemes

Equity schemes invest in stocks of companies which are also called equities. Under the SEBI categorization, Equity Schemes are further divided into ten different subcategories.

  • Multi Cap Fund: Multi cap mutual funds invest in various kinds of stocks such as large cap, mid cap and small cap stocks. At least 65% of it has to be invested in equity and equity related instruments.  
  • Large Cap Fund: 80% of the total assets of a large cap fund is invested in large cap companies. In the circular, SEBI defines Large Cap as “1st -100th company in terms of full market capitalization”. Large cap funds have less risk among equity funds, as they invest in big, established companies that are stable. But the returns are subsequently lower as there is less margin for growth 
  • Large & Mid Cap Fund: this scheme invests in both large cap and mid cap stocks. According to SEBI’s mandate, a minimum of 35% of the total assets should be invested in equity and equity related instruments of mid cap stocks. 
  • Mid Cap Fund: Mid cap funds predominantly invest in mid cap stocks. At least 65% of its assets should be invested in mid cap companies.  
  • Small Cap Fund: small cap funds invest in stocks of small cap companies. Again, at least 65% of its total assets has to be invested in stocks of small cap companies. Small cap mutual funds give the highest returns. At the same time, they come with greater risks than large cap funds. This is due to the fact that small companies are more vulnerable.   
  • Dividend Yield Fund: dividends are the shares of profit that a company makes distributed among its investors. Sometimes dividends are reinvested, and is therefore no given away. Dividend yield funds invest in stocks that give dividends to its investors. 
  1. ELSS: ELSS funds have a lock in period of three years. They are the most popular as a tax saving scheme. 

The remaining three subcategories of equity mutual funds are Value Fund, Focused Fund and Sectoral/Thematic Funds.

  1. Debt Schemes

16 types of mutual funds fall under debt schemes. Debt funds invest in government securities and bonds. These are of relatively less risk and give more returns than ordinary bank schemes such as savings bank and Fixed Deposit. Debt schemes have lock-in periods ranging from one day to 10 years.

  • Overnight Fund: overnight funds invest in overnight securities. These have a maturity period of one day. 
  • Liquid Fund: liquid funds are debt funds with a maturity period of 91 days. 
  • Ultra Short Duration Fund: ultra short duration have a maturation period of three to six months. 
  • Low Duration Fund: low duration funds have a maturation period of 6 months to one year. 
  • Money Market Fund: According to SEBI’s circular, money market fund is “an open ended debt scheme investing in money market instruments.”

6-10. Short Duration Fund, Medium Duration Fund, Medium to Long Duration Fund, Long Duration Fund: these are funds with different Macaulay duration. Macaulay duration is the period an investor needs to get all their invested money back.  

  1. Dynamic Bond: as the name suggests, these are dynamic investment schemes that invest across duration. 

12.Corporate Bond Funds invest in high rated corporate bonds. 

  1. Credit Risk Fund invest in corporate bonds that are not premium. 
  2. Banking and PSU Funds invest in various debt instruments of banks.
  3. Gilt Fund: invest in government securities.
  4. Floater Funds are debt funds that invest in “floating rate instruments”.

The third main category, Hybrid Funds offer a combination of both equities and debt schemes. 

Conservative Hybrid Funds invest mainly in debt instruments. 

Balanced Hybrid Fund invest in both equity and debt instruments whereas Aggressive hybrid funds invest in equity and equity related instruments. Dynamic Asset Allocation fund, Multi Asset Allocation, Arbitrage Fund, Equity Savings are open ended hybrid schemes investing in different asset classes, arbitrage opportunities and debt. 







What is a Mutual Fund?

The institution of mutual funds was established centuries ago during the voyages of Dutch East India Company on the way to India and other colonies. It became popular owing its profile as relatively safer investment. Nowadays there are thousands of mutual funds managed by different AMCs such as Tata Mutual funds, HDFC Mutual Fund and so on. Because of its soaring popularity, Securities and Exchange Board of India(SEBI) recently stepped in and reorganized the categories of mutual funds. SEBI is the regulatory body that oversees all the exchanges and transactions that take place in stock exchanges in India

In 2017, SEBI issued a circular clearly stating the new categorization of mutual funds with the definitions of each mutual fund listed. We will try to explain the SEBI circular here so it is easier for you to understand.

What are the categories of Mutual Funds?

SEBI came up with five umbrella categories that all types of mutual funds in India would fall under. These are Equity Schemes, Debt Schemes, Hybrid Schemes, Solution Oriented Schemes and others.

  • Equity Schemes

Equity schemes invest in stocks of companies which are also called equities. Under the SEBI categorization, Equity Schemes are further divided into ten different subcategories.

  • Multi Cap Fund: Multi cap mutual funds invest in various kinds of stocks such as large cap, mid cap and small cap stocks. At least 65% of it has to be invested in equity and equity related instruments.  
  • Large Cap Fund: 80% of the total assets of a large cap fund is invested in large cap companies. In the circular, SEBI defines Large Cap as “1st -100th company in terms of full market capitalization”. Large cap funds have less risk among equity funds, as they invest in big, established companies that are stable. But the returns are subsequently lower as there is less margin for growth 
  • Large & Mid Cap Fund: this scheme invests in both large cap and mid cap stocks. According to SEBI’s mandate, a minimum of 35% of the total assets should be invested in equity and equity related instruments of mid cap stocks. 
  • Mid Cap Fund: Mid cap funds predominantly invest in mid cap stocks. At least 65% of its assets should be invested in mid cap companies.  
  • Small Cap Fund: small cap funds invest in stocks of small cap companies. Again, at least 65% of its total assets has to be invested in stocks of small cap companies. Small cap mutual funds give the highest returns. At the same time, they come with greater risks than large cap funds. This is due to the fact that small companies are more vulnerable.   
  • Dividend Yield Fund: dividends are the shares of profit that a company makes distributed among its investors. Sometimes dividends are reinvested, and is therefore no given away. Dividend yield funds invest in stocks that give dividends to its investors. 
  1. ELSS: ELSS funds have a lock in period of three years. They are the most popular as a tax saving scheme. 

The remaining three subcategories of equity mutual funds are Value Fund, Focused Fund and Sectoral/Thematic Funds.

  1. Debt Schemes

16 types of mutual funds fall under debt schemes. Debt funds invest in government securities and bonds. These are of relatively less risk and give more returns than ordinary bank schemes such as savings bank and Fixed Deposit. Debt schemes have lock-in periods ranging from one day to 10 years.

  • Overnight Fund: overnight funds invest in overnight securities. These have a maturity period of one day. 
  • Liquid Fund: liquid funds are debt funds with a maturity period of 91 days. 
  • Ultra Short Duration Fund: ultra short duration have a maturation period of three to six months. 
  • Low Duration Fund: low duration funds have a maturation period of 6 months to one year. 
  • Money Market Fund: According to SEBI’s circular, money market fund is “an open ended debt scheme investing in money market instruments.”

6-10. Short Duration Fund, Medium Duration Fund, Medium to Long Duration Fund, Long Duration Fund: these are funds with different Macaulay duration. Macaulay duration is the period an investor needs to get all their invested money back.  

  1. Dynamic Bond: as the name suggests, these are dynamic investment schemes that invest across duration. 

12.Corporate Bond Funds invest in high rated corporate bonds. 

  1. Credit Risk Fund invest in corporate bonds that are not premium. 
  2. Banking and PSU Funds invest in various debt instruments of banks.
  3. Gilt Fund: invest in government securities.
  4. Floater Funds are debt funds that invest in “floating rate instruments”.

The third main category, Hybrid Funds offer a combination of both equities and debt schemes. 

Conservative Hybrid Funds invest mainly in debt instruments. 

Balanced Hybrid Fund invest in both equity and debt instruments whereas Aggressive hybrid funds invest in equity and equity related instruments. Dynamic Asset Allocation fund, Multi Asset Allocation, Arbitrage Fund, Equity Savings are open ended hybrid schemes investing in different asset classes, arbitrage opportunities and debt. 







Rate this blog entry:
What is Intraday trading ?
How often are the CIBIL scores updated?
 

Comments

No comments made yet. Be the first to submit a comment
Already Registered? Login Here
Guest
Sunday, 26 January 2020

Captcha Image

Popular Investing Books

Andrew Tobias
John C. Bogle
Howard Marks
Michael W. Covel
Nassim Nicholas Taleb
James Montier

Search Blogs

Most Popular Authors

Top 100 Investment Blogs

Reduce your Brokerage by 100%!!

 95 members logged in


Be a Smart & Well Informed Investor!
Join Today its Free.
Register or Login with just one Click using your Social Account