Mutual funds offer a diverse range of options to investors, based on their needs and goals. However, mutual funds can be classified into two parts, which can be further divided into subtypes. Here is a detailed look at the types of mutual funds –
On the basis of the maturity period
- Open-Ended funds
As the name suggests, open-ended funds offer the greatest amount of freedom to investors. With these schemes, there are no fixed maturity dates and the investor is free to buy or sell units at the NAV at any point in time. Being liquid funds, the investment in open-ended funds can be made throughout the year, without any restrictions.
- Close-ended funds
Mutual funds that have a fixed maturity period are known as close-ended funds. You cannot invest in close-ended funds at all times. If you want to invest in such schemes, you need to wait for a specific time or when they are initially launched.
- Interval funds
Interval funds mix the characteristics of open-ended and close-ended funds. They are available only during specified intervals of the year. These intervals are pre-determined. However, during the availability of interval funds, they behave like open-ended funds.
On the basis of the fund’s objective
- Equity funds
Equity funds refer to mutual funds in which a majority of the investment is directed towards equities. These investments involve greater risk, but also offer more returns. If you are looking to achieve long-term growth, you need to invest in equity funds. Equity funds may focus on one particular sector or they may include stocks from diverse sectors.
- Debt funds
Another type of mutual funds, a debt fund invests in securities, debentures, and bonds. Since all of these schemes are debt instruments, the risk is relatively low. Similarly, the returns from such investments are low. If you are looking for safe investment options, debt funds are the correct choice for you. These investments will allow for a moderate growth of income, instead of huge earnings.
- Balanced funds
Balanced funds act as a middle ground between debt and equity funds, as their portfolio is a blend of equities and debt. The objective for the investor is to achieve financial growth while keeping the risk low. The returns are stable and you can try to build your personal finances through investment in balanced funds.
- Liquid funds and Money Market
These mutual funds offer shorter term for investments. They invest in schemes, such as commercial papers, treasury bills and more. The duration for investment is limited up to 91 days. The goal of investing in the money market is to attain greater liquidity with moderate returns.
- Gilt funds
These funds invest in government securities. They involve no risk and are the safest type. However, the returns are extremely low from such investments.
Apart from these types, mutual funds can also be divided into growth and dividend options. In dividend funds, the return is distributed among the investors, while in growth funds the returns are reinvested into the scheme. Research online mutual funds, so that you get a better understanding of the various options.
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