Beginners Guide to Mutual Funds

Mutual funds are one of the popular investments. Key aspects that make mutual funds highly sought after are their ease, flexibility, and diversification benefits. One of the prime reasons that make mutual funds highly popular is the fact that they are a great option for any kind of investor. 

If you too are an investor looking forward to making your first mutual fund investment, read along to uncover the types of mutual funds you can choose to invest in. 

Types of Mutual Funds

Mutual funds can be classified into many types. It is important to note that mutual funds are categorized on multiple aspects like structure, investment goals and assets. Let us understand the types of mutual funds based on the different grounds.

Mutual Fund Types Based on Structure 

On the basis of structure, here are the types mutual funds can be classified into:

• Open-ended Funds

  Good choice for investors seeking liquidity, open-ended funds do not limit when or how many units can be purchased.

• Close-ended Funds

  Come with a pre-decided unit capital amount. These funds allow purchase only during a specified period.

• Interval Funds

  A mix of open-ended and close-ended funds, interval mutual funds allow transactions at specific periods.
  

Mutual Fund Types Based on Investment Goals

On the basis of your financial goals, you can pick mutual funds like:

• Growth Funds

  These invest primarily in high-performing stocks with the purpose of capital appreciation.
  
  

• Tax-saving Funds (ELSS)

   These funds invest mostly in company securities and qualify for tax deductions under Section 80C of the Income Tax Act.
  
  

• Liquidity-based Funds

   These funds are further categorized into ultra-short-term and liquid funds based on how liquid the investments are.
  

• Capital Protection Funds

   These funds partially invest in fixed income instruments and the remaining portion into equities.
  
  

• Fixed-maturity Funds (FMF)

  These funds invest in debt market instruments. Those debt  market instruments are picked that have either the same or similar maturity period.
  
  

• Pension Funds

  These funds invest to provide regular returns after a long period of investment.
  

Mutual Fund Types Based on Assets They Invest In

On the assets they invest in, mutual funds are categorized under:

• Equity Funds

  These funds invest money in company shares with returns depending on how the stock market performs. These are risky funds that give high returns.
  
  

• Debt Funds

  These funds invest money into fixed-income securities, thereby offering stability and a regular income with minimum risk.
  
  

• Hybrid Funds

  These funds invest in debt and equity instruments. This fund type balances out debt and equity.
  
  

• Solution-oriented Funds

  These mutual funds serve the purpose well for marriage, child’s education and more. Also, they have a lock-in period of at least 5 years.
  

• Other Funds

  Other funds such as index funds invest on the basis of certain stock indices and fund of funds.

Takeaway 

It may seem difficult to understand the different mutual fund types. However, you can simply get the concept of mutual fund categorization by emphasizing on your individual financial goals. As an investor, go ahead and compare your needs with the fund objective. Then, invest accordingly so that your money is used well. Make sure you keep your risk appetite in mind as well before you make the final decision regarding mutual fund investment.   

Also read: Pension Plans Vs Mutual Funds

What Is Better - Mutual Fund Or ETF?

Disclaimer: This article is issued in the general public interest and meant for general information purposes only. Readers are advised not to rely on the contents of the article as conclusive in nature and should research further or consult an expert in this regard.