Types of Mutual Fund

Types of Mutual Fund

Wide variety of Mutual Fund Schemes exist to cater to the needs such as financial position, risk tolerance and return expectations etc.Mutual Funds can be classifieds as per Their structure,Investment &Investment Options mode.

Maturity/Tenure wise Classification

    1.Open ended Schemes

    2.Closed end Schemes
    
    3.Interval Schemes

Open-ended Fund/ Scheme : 

An open-ended fund or scheme is one that is available 

for subscription and repurchase on a continuous basis.These schemes do not have a 

fixed maturity period. Investors can conveniently buy and sell units at Net Asset Value 

(NAV) related prices which are declared on a daily basis.The key feature of open-end 

schemes is liquidity.

Close-ended Fund/ Scheme:
A close-ended fund or scheme has a stipulated maturity 

period e.g. 5-7 years. The fund is open for subscription only during a specified period at the time of launch of the scheme.Investors can invest in the scheme at the time of the 

initial fund offer and thereafter they can buy or sell the units of the scheme on the stock 

exchanges where the units are listed. In order to provide an exit route to the investors, 

some close-ended funds give an option of selling back the units to the mutual fund 

through periodic repurchase at NAV related prices. SEBI Regulations stipulate that at 

least one of the two exit routes is provided to the investor i.e. either repurchase facility 

or through listing on stock exchanges.These mutual funds schemes disclose NAV 

generally on weekly basis. 

Interval Fund:
These funds fall between open-ended and close-ended funds.They offer  benefit of flexibility and ensure that investors have liquidity of capital at regular 

intervals. Investors can repurchase or sell based on the NAV.They do allow investors to 

make purchases once the initial offer period is over but they will not be available for 

purchase and sale everyday.Companies that launched interval funds in India are Birla 

sun life, prudential ICICI and ABN-Amro.

Investment objective

• Equity Funds

• Debt Funds

• Balanced Funds

Equity Funds:

• Pre-dominantly invest in Equity markets(Select set based on some criterion/Diversified portfolio of Equity shares) 
• Diversified equity funds
  
  
• Primary market funds
• Small stock funds

• Index funds

• Sect-oral funds

Debt Funds:

• Pre-dominantly invest in Debt markets(Select set based on some criterion/Diversified Debt Bonds) 
• Income funds or Diversified debt funds
  
  
• Glit funds
• Liquid and Money Market funds

• Serial plans or fixed term Plans

Balanced Funds :

• Investment in more than one asset class

         ->  Debt and equity in comparable proportions

         ->  Pre-dominantly debt with some exposure to equity

          -> Pre-dominantly equity with some exposure to debt

• Education plans and children’s plans

Money Market Fund: 

These are also known as liquid funds. These provide liquidity, capital preservation and moderate income. Money market funds are suitable for investors who have short-term outlook. They invest in short-term investments such as treasury bills, certificate of deposits and commercial paper. Fluctuations on returns are less in these funds compared to others. There are two types of money market funds – 

institutional and retail. Examples of money market funds are BoB Liquid Fund, 

Reliance Liquid Fund and Treasury Plan etc. 

Gilt Fund: 

Gilt funds invest in medium and long-term government securities. They are originated in Britain. These have no default risk. NAVs of these schemes fluctuate due to change in interest rates and other economic factors. 

Index Fund: Index funds are designed to replicate the performance of stock market index. They are passively managed funds. The transaction fee is less. They have low cost of management. They are appropriate for conservative long-term investors with moderate risk. Examples of index funds are UTI Master Index Fund, Franklin India Index Tax Fund etc. 

Exchange Traded Fund: 

Exchange traded funds are investment vehicles traded on the stock exchange. Exchange Traded Funds (ETFs) are innovative products that are available in the USA since 1993. About 60% of trading in American Stock Exchanges takes place in ETFs. ETFs give investors opportunity to buy or sell an entire portfolio, in a single security. They also offer hedging and arbitrage opportunities. They safeguard the interests of long-term investors. Unlike other mutual funds, ETFs are not sold or redeemed at NAV. ETFs enjoy the benefits of diversification, low cost and transparency. There are different types of ETFs – Index ETFs, Commodity ETFs, Bond ETFs, Currency ETFs, Actively Managed ETFs, Hedge Fund ETFs, and Leveraged ETFs. They also offer Hedging and Arbitrage opportunities. 

Investment Options:

• Investors can achieve income and growth objectives in all funds

  1.Dividend Option

  2.Growth Option

  3.Re-Investment Option

Basis for Classification:

• Risk

          -> Sect-oral funds are most risky; money market funds are least risky

•  Tenure

           –>Equity funds require a long investment horizon; liquid funds are for
               
               the short term liquidity needs                               

• Investment objective

         –>Equity funds suit growth objectives; debt funds suit income 

             objectives  

Risk and Return:

In Mutual Funds,Risk & Rewards are directly Correlated,When High Risk is there High Returns Also Possible.

Low Risk ---- Low Return