Types of Mutual Funds in India - Complete Guide 2023

Types of Mutual Funds in India: A Comprehensive Guide

Mutual Funds

Welcome, financial voyagers! In the sprawling universe of investments, the star known as Mutual Funds has been burning bright for quite some time. But have you ever wondered what makes it shine so luminously in the vast financial cosmos? If you’re contemplating navigating the world of mutual funds, understanding their different types of Mutual Fund is akin to having a stargazing guide in hand. This blog is your telescope into the cosmos of mutual funds – geared to help you map your financial journey with greater precision. Let’s get this interstellar journey started!

What are Mutual Funds?

The concept of Mutual Funds is as exciting as it sounds. Imagine a group of people coming together, pooling their resources, and investing them in a diverse range of securities – stocks, bonds, money market instruments, etc. Quite social, isn’t it? The beauty of mutual funds is that they are professionally managed by experts known as fund managers, who do the heavy lifting of market research and investment decisions, making your life significantly easier.

In India, mutual funds are regulated by the Securities and Exchange Board of India (SEBI), which ensures your money is in safe hands. Each investor in the fund owns units, representing a portion of the holdings of the fund. You can reap rewards in the form of income, or losses if the market turns sour – it’s a real-life drama of risks and returns!

Now, one might ask, why bother knowing about different types of mutual funds? It’s pretty simple – not every star in the cosmos serves the same purpose, does it? Similarly, the diverse types of mutual funds cater to different investor needs, risk appetites, and financial goals. Let’s delve deeper into this constellation to understand more.

Broad Categories of Mutual Funds

Before we embark on our detailed stargazing, let’s familiarize ourselves with the broader constellations, or categories, of mutual funds that hover in the investment universe.

  1. Equity Funds: This category is the thrill-seeker of the mutual fund universe. If you’re adventurous, and high-risk-high-return is your mantra, then Equity Funds could be your star. These funds primarily invest in equity shares of companies, making their performance directly tied to the stock markets.
  2. Debt Funds: A category for the steady sailors among us. Debt funds invest in fixed income securities like government bonds, corporate bonds, treasury bills, etc. They offer stable returns and are less risky than equity funds, making them a preferred choice for risk-averse investors.
  3. Hybrid Funds: For those who enjoy the best of both worlds, Hybrid Funds could be your star. These funds invest in both equity and debt instruments, offering a balance of risk and return.
  4. Solution Oriented Funds: These funds are goal-driven and have a mandatory lock-in period. They’re tailor-made for specific life goals like retirement or child’s education.
  5. Other Funds: This category includes funds that don’t fit neatly into the above categories, such as Index Funds, Sectoral Funds, ETFs, etc.

Now that we have a broad understanding of the mutual fund categories, let’s take a deep-dive into each type, exploring their unique characteristics. Fasten your seatbelts, folks! We’re about to go light-speed!

This section brings us to the end of our initial exploration into the cosmos of mutual funds. Stay tuned as we delve deeper into the types of mutual funds in India, understand them based on risk, and explore the world of specialized mutual funds. This journey promises to be both enlightening and exciting!

Types of Mutual Funds in India: A Closer Look

Buckle up, cosmonauts! Now we embark on our detailed spacewalk into the vast universe of mutual funds. Let’s get up close and personal with these celestial bodies:

  1. Large Cap Funds: Here, we have the giants of the universe – investing primarily in large-cap companies that are often leaders in their respective sectors. These are stable stars that promise consistent returns, albeit, they may not be as dazzling as their smaller counterparts.
  2. Mid Cap Funds: This is the exciting world of the middle-weights. Mid Cap Funds invest in medium-sized companies that showcase significant potential for growth. A bit riskier than large-cap funds, but could offer better returns – a perfect stop for the adventurous investor!
  3. Small Cap Funds: Welcome to the pulsars of the mutual fund universe. These funds invest in small companies that are in their nascent stage but could become the next big thing. With high risks come high returns – if you are the betting kind, this is your playground.
  4. Multi-Cap Funds: For investors who like to spread their investments across different cap sizes, Multi-Cap Funds are the go-to choice. This category doesn’t discriminate and is designed to capture the upside of all sectors and company sizes.
  5. Index Funds: If following the market leader is your style, Index Funds might be your star. These funds mirror a market index like the Nifty or the Sensex, keeping your returns at par with market performance.
  6. Sectoral Funds: Want to stick with a particular sector you believe will outperform? Invest in Sectoral Funds. These funds invest in specific sectors like IT, Pharma, or FMCG, offering high returns but carry sector-specific risks.
  7. ELSS Funds: Here’s a star that helps you save on taxes – Equity Linked Savings Scheme or ELSS Funds. They offer tax deductions up to a certain limit under the Income Tax Act, and what’s more, they invest in equity markets promising potentially high returns.
  8. Balanced/Hybrid Funds: If balance is your mantra, these funds are for you. Balanced funds invest in a mix of equity and debt instruments, ensuring both growth and stability.
  9. Debt Funds: If you’re the type who prefers safety over high returns, Debt Funds are your star. Investing primarily in debt instruments, these funds offer steady, predictable returns.
  10. Money Market Funds: For those preferring ultra-short-term investments with high liquidity, money market funds are an ideal choice. They invest in highly liquid money market instruments.

Understanding Mutual Funds Based on Risk

With the universe of mutual funds spread out before us, let’s take a moment to understand them based on their risk profiles:

  1. Low-Risk Mutual Funds: Usually Debt Funds, Fixed Income Funds, and Money Market Funds fall into this category. They offer moderate but steady returns.
  2. Moderate-Risk Mutual Funds: These are typically Balanced or Hybrid Funds and Large Cap Funds. They offer a blend of safety and return.
  3. High-Risk Mutual Funds: These are predominantly Equity Funds, Sectoral Funds, and Small Cap Funds. They carry the potential for high returns, but also significant risk.

A Glance at Specialized Mutual Funds

Before we wrap up our exploration, let’s look at a couple of unique stars in the mutual fund universe:

  1. Fixed Maturity Plans (FMPs): These debt funds invest with a specific maturity date in mind. They’re low-risk and can offer better post-tax returns than bank fixed deposits.
  2. Fund of Funds (FoFs): These funds invest in other mutual funds. A simple way to diversify your investment across various funds.
  3. Quant Funds: These use algorithms and quantitative models to decide where to invest. They reduce the emotion in investing, bringing a method to the madness.

How to Choose the Right Type of Mutual Fund

At this point, you might wonder – how do I choose the right star in this vast universe? Here’s a simple three-step guide:

  1. Understand Your Financial Goals: What are you saving for? Retirement, buying a home, your child’s education, or a trip to Mars?
  2. Know Your Risk Appetite: Can you handle the turbulence of the equity market, or do you prefer the calm voyage of the debt market?
  3. Look at the Fund’s Performance: Always remember, past performance is not an indicator of future returns. But it can give you an idea of the fund manager’s skill.

Mutual Fund Calculator

As we’ve journeyed through the cosmos of mutual funds, you might be wondering how you can forecast your potential earnings from a mutual fund investment. Enter the Mutual Fund Calculator – your intergalactic GPS guiding you through the financial stars. This handy tool helps you calculate the estimated returns on your mutual fund investments.

How Does a Mutual Fund Calculator Work?

The mutual fund calculator is a device of mathematical genius, using the power of compounding to estimate your returns. You simply need to feed in details like your investment amount (lump sum or SIP), the expected rate of return, and the duration of the investment. Hit ‘calculate’, and voila! You’ll get an estimate of your investment’s worth at the end of the period.

Remember, while these calculators provide an estimate, the actual returns can vary based on market performance. But, it’s an excellent tool for initial planning and setting realistic expectations.

Advantages of Using a Mutual Fund Calculator

  • Planning Investments: It helps you plan your investments based on your financial goals.
  • Comparing Funds: It allows you to compare different funds and choose the one that gives you the best returns.
  • Forecasting Returns: It provides an estimate of the potential returns on your investment.
  • Assessing Investment Strategy: You can use it to assess your investment strategy and make necessary adjustments.

The mutual fund calculator is a useful tool to have in your financial toolkit. It provides a glimpse into your potential earnings and helps guide your investment decisions. Want to try it out? Use this Mutual Fund Calculator to start planning your investments today.

Remember, the future might be full of unknowns, but with the right tools and knowledge, you can chart a course to your financial galaxy. Invest wisely and make the most of the vast universe of mutual funds. Happy investing!


And there you have it, dear cosmonauts! You’ve now explored the vast universe of mutual funds and are better equipped to embark on your financial journey. Remember, choosing the right mutual fund is about finding the star that aligns with your financial goals and risk appetite. So gear up, set your course, and blast off towards your financial universe with mutual funds!

Frequently Asked Questions

What are mutual funds?

Mutual funds are investment vehicles that pool money from various investors to invest in a diversified portfolio of securities such as stocks, bonds, and other assets.

What are the types of Mutual Funds available in India?

There are several types of mutual funds in India, categorized based on asset class, structure, investment objective, risk, etc. They include Equity Funds, Debt Funds, Hybrid Funds, and several others.

How do I choose a Mutual Fund based on risk?

Understanding your risk tolerance is crucial in choosing a mutual fund. If you can tolerate high risk for higher returns, consider equity funds. If you prefer stability, look at debt funds. For a balance of both, consider hybrid funds.

What are some specialized Mutual Funds?

Specialized mutual funds include Fixed Maturity Plans (FMPs), Fund of Funds (FoFs), and Quant Funds, among others.

How can mutual funds help in achieving financial goals?

Mutual funds offer diversification, professional management, and potential for significant returns, making them a valuable tool for achieving various financial goals, whether short-term or long-term.