AMFI's latest report shows that individual investors have significantly influenced the growth of mutual fund categories such as equity, hybrid, and solution-oriented schemes. These schemes have seen increased participation from individual investors, driving their dominance in the industry's asset growth.
This trend makes you wonder: what are the various mutual fund types in which individual investors like you are investing? This guide will help you understand mutual funds and their types, particularly the mutual fund types in India, so that you can make informed investment decisions.
When considering mutual funds, it's crucial to understand that each type has risks and potential rewards. For instance, one investor might be a young professional looking to maximise returns over a long period, while another might be a retiree seeking a stable income. Each would benefit from different mutual fund types.
Equity-oriented mutual funds invest primarily in companies' stocks across various sectors. These funds aim to generate high returns by capitalising on the growth potential of the equity market. They are ideal for investors looking for long-term capital appreciation and who can tolerate higher levels of risk.
In FY24, equity-oriented mutual funds saw assets grow by 55% to ₹23.50 lakh crore. Within this broad category are multiple types of funds, each catering to different investor needs.
The table below outlines the different kinds of equity-oriented mutual funds with various characteristics.
|
Fund Category |
Composition |
Purpose |
Risk Level |
|
Multi Cap Fund |
Minimum 75% in equity & equity-related instruments |
Diversified investment across large, mid, and small caps to manage risk and reward |
Very High |
|
Flexi Cap Fund |
Minimum 65% in equity & equity-related instruments |
Flexible allocation among large, mid, and small caps based on market conditions |
Very High |
|
Large Cap Fund |
Minimum 80% in large-cap stocks |
Investment in established companies for stability and steady returns |
Very High |
|
Large & Mid Cap Fund |
At least 35% in large caps and 35% in mid caps |
Balanced exposure to the stability of large caps and the growth potential of mid caps |
Very High |
|
Mid Cap Fund |
Minimum 65% in mid-cap stocks |
Focus on mid-sized companies with higher growth potential |
Very High |
|
Small Cap Fund |
Minimum 65% in small-cap stocks |
Investment in small companies with high growth potential but higher volatility |
Very High |
|
Dividend Yield Fund |
Primarily in dividend-yielding stocks, with at least 65% in equities |
Aims for regular income through dividends and capital appreciation |
Very High |
|
Value Fund |
At least 65% in equities, following a value investment strategy |
Investment in undervalued companies with significant growth potential |
Very High |
|
Contra Fund |
At least 65% in equities, following a contrarian strategy |
Invests in out-of-favor stocks with potential for future growth |
Very High |
|
Focused Fund |
Up to 30 stocks with at least 65% in equity & equity-related instruments |
Concentrated investments in high-conviction stocks for potentially higher returns |
Very High |
|
Sectoral or Thematic Fund |
Minimum 80% in a specific sector or theme such as Infrastructure, Banking, Pharma or FMCG |
Investment focused on specific sectors or themes expected to outperform the broader market |
Very High |
|
ELSS |
Minimum 80% in equities, as per ELSS guidelines |
Offers tax benefits under Section 80C with a 3-year lock-in period |
Very High |
Also Read: What Are Direct Mutual Funds?
Debt mutual funds invest in fixed-income securities such as bonds, treasury bills, and other debt instruments. They aim to provide regular income and capital preservation with lower risk than equity funds. Debt mutual funds suit conservative investors, prioritising stability and income over high returns.
In fiscal 2024, debt mutual funds experienced moderate growth of around 7%, closing with assets of ₹12.62 lakh crore. Money Market and Liquid Funds were among the top performers in terms of asset growth.
The table below outlines the different types of debt mutual funds and their specific benefits.
|
Fund Category |
Composition |
Purpose |
Risk Level |
|
Overnight Fund |
Investment in overnight securities with a maturity of 1 day |
Ultra-short-term investment with high liquidity |
Low |
|
Liquid Fund |
Investment in debt and money market securities with a maturity of up to 91 days |
Short-term liquidity and low risk |
Moderate |
|
Ultra Short Duration Fund |
Debt and money market instruments with a portfolio Macaulay duration of 3 to 6 months |
Short-term investments with slightly higher returns than liquid funds |
Moderate |
|
Low Duration Fund |
Debt and money market instruments with a portfolio Macaulay duration of 6 to 12 months |
Balances liquidity and returns with low risk |
Low to Moderate |
|
Money Market Fund |
Investment in money market instruments with a maturity of up to 1 year |
Short-term parking of funds with low risk |
Low to Moderate |
|
Short Duration Fund |
Debt and money market instruments with a portfolio Macaulay duration of 1 to 3 years |
Short-term investments with moderate returns |
Moderate |
|
Medium Duration Fund |
Debt and money market instruments with a portfolio Macaulay duration of 3 to 4 years |
Medium-term investments with balanced risk and return |
Moderate |
|
Medium to Long Duration Fund |
Debt and money market instruments with a portfolio Macaulay duration of 4 to 7 years |
Medium to long-term investments with higher returns |
Moderate |
|
Long Duration Fund |
Debt and money market instruments with a portfolio Macaulay duration greater than 7 years |
Long-term investments for higher returns |
Moderate |
|
Dynamic Bond Fund |
Investment across various durations based on market conditions |
Flexibility to adjust duration according to interest rate movements |
Moderate |
|
Corporate Bond Fund |
At least 80% investment in high-quality corporate bonds (AA+ and above) |
Steady returns with low to moderate risk |
Moderate |
|
Credit Risk Fund |
Minimum 65% investment in lower-rated corporate bonds (AA and below) |
Higher returns with increased risk |
High |
|
Banking and PSU Fund |
Minimum 80% investment in debt instruments of banks, public sector undertakings, and financial institutions |
Safe returns with low risk |
Moderate |
|
Gilt Fund |
At least 80% investment in government securities (G-secs) |
Secure investments with moderate returns |
Moderate |
|
Gilt Fund with 10 Year Duration |
Minimum 80% investment in government securities with a portfolio duration of 10 years |
Long-term investment with stable returns |
Moderate |
|
Floater Fund |
Minimum 65% investment in floating rate instruments |
Protection against interest rate volatility |
Low to Moderate |
Also Read: Liquid Mutual Funds Measuring the Metrics to Choose the Best Fund
Hybrid funds invest in a mix of equity and debt instruments, offering a balanced approach to risk and return. They are designed for investors who seek a diversified portfolio that can provide both growth and income. They are suitable for investors looking for moderate risk exposure with the potential for higher returns than pure debt funds but less volatility than pure equity funds.
In fiscal 2024, hybrid funds crossed the ₹7 lakh crore mark, showcasing a growth of over 50% to close at ₹7.22 lakh crore. Dynamic asset allocation funds emerged as the largest sub-category within the hybrid category.
The table below provides insights into the different types of hybrid funds available.
|
Fund Category |
Composition |
Purpose |
Risk Level |
|
Conservative Hybrid Fund |
10% to 25% investment in equity & equity-related instruments; 75% to 90% in debt instruments |
Prioritise stability and income with limited equity exposure |
High |
|
Balanced Hybrid Fund |
40% to 60% investment in equity & equity-related instruments; 40% to 60% in debt instruments |
Balanced allocation for growth and income |
Moderately High |
|
Aggressive Hybrid Fund |
65% to 80% investment in equity & equity-related instruments; 20% to 35% in debt instruments |
Higher equity exposure for potential growth with some stability |
Very High |
|
Dynamic Asset Allocation or Balanced Advantage Fund |
Allocation between equity and debt is dynamically managed based on market conditions |
Flexibility to shift between equity and debt as needed |
Very High |
|
Multi Asset Allocation Fund |
Investment in at least 3 asset classes with a minimum of 10% in each |
Diversified exposure to multiple asset classes |
Very High |
|
Arbitrage Fund |
Minimum 65% investment in equity & equity-related instruments, utilising arbitrage opportunities |
Low-risk strategy to exploit price differences between markets |
Low |
|
Equity Savings Fund |
Minimum 65% in equity and equity-related instruments; 10% in debt instruments and derivatives for hedging purposes |
Balanced approach with equity growth and debt stability |
Moderately High |
Passive funds aim to replicate the performance of a specific index or benchmark, such as the Nifty 50. These securities are identical to those in the index they follow, and they aim to provide extensive market exposure at minimal fees. These funds are ideal for investors who prefer a hands-off approach and are looking for a cost-effective way to invest in the market.
In fiscal 2024, passive funds continued to grow, driven by institutional investments into Exchange Traded Funds (ETFs) by entities like provident funds. ETFs alone have assets totalling ₹6.64 lakh crore. This growth highlights the increasing popularity of passive investing strategies.
The table below provides a detailed overview of the various passive funds available.
|
Fund Category |
Composition |
Purpose |
Risk Level |
|
Index Funds |
Tracks the performance of a specific index by holding all or a representative sample of the securities in that index |
Low-cost market tracking |
Very High |
|
Gold ETF |
Invests in gold or gold-related securities to track the price of gold |
Hedge against inflation |
High |
|
Fund of Funds Investing Overseas |
Invests in a variety of international mutual funds, providing global exposure |
Diversification, global exposure |
Very High |
The key to successful investing lies in understanding the risks and rewards of each mutual fund type. In 2024, equity-oriented funds grew by 55%, hybrid funds by 50%, and passive funds saw substantial inflows. Tailor your investments to your goals and risk tolerance for optimal results.
Whether you're seeking high returns through equity funds, stable income through debt funds, or a balanced approach with hybrid funds, there's a mutual fund type that fits your needs.
At Sharekhan, we strive to make your mutual fund investment journey stress-free. With personalised service support, research-backed strategies through Sharekhan's Q Square Mutual Fund Research philosophy, and innovative mutual fund tools informed by tech, we ensure you are our priority.
For more in-depth information on the various products, visit the Sharekhan Knowledge Centre. Happy investing!
Delve into the world of futures and options trading with Sharekhan expert guidance. Our comprehensive resources and intuitive platform empower you to make informed decisions and capitalize on market movements.
Embark on your stock trading journey with Sharekhan's comprehensive platform. Learn the fundamentals of equity trading, gain insights into market trends, and access powerful tools to make informed investment decisions.
Safeguard your investments with Sharekhan's secure and reliable Demat account. Our platform offers robust security features to protect your holdings, ensuring your investments are in safe hands. Open Demat account today and enjoy peace of mind while you invest.
Make informed mutual fund investment decisions with Sharekhan's expert guidance. Explore a wide array of funds to match your financial goals and risk tolerance. Start building your wealth today.
Leverage Sharekhan's market knowledge and experience to make informed decisions in the initial public offering (IPO) space. Our research and analysis equip you with the insights you need to identify promising IPOs and participate in their growth potential.
