Based on the Asset class Mutual funds may be classified into following categories or type:
Equity Funds
Equity funds are mutual funds that invests largely in equities and are among the most popular mutual fund plans. They enable investors to engage in stock markets, wherein you deposit money into the fund in the form of a SIP or a lump amount, and it invests it in various equities stocks on your behalf.
However, being a responsible long-term investor might help you learn more about how an equity mutual fund works as they are classified as high risk, some strategies offer the potential for a substantial return in the long run.
They are perfect for investors in their peak earning stage who want to develop a portfolio that will provide superior long-term returns. An equity fund, often known as a diversified equity fund, typically invests across many industries to spread risk.
They are divided into sub categorised into two types:
Sector-Specific Funds – Wherein you can decide which sector you wish to invest in.
Index Funds – Suits an investor who do not wish to completely depend on the fund manager.
Debt Funds
A debt funds is an investing pool, such as a mutual fund or exchange-traded fund, in which the primary assets are fixed income investments. A debt fund may invest in short-term or long-term bonds, securitized assets, money market instruments, or variable rate debt.
Because total management expenses are lower, fee ratios on debt funds are lower on average than those on equity funds. The debt fund instrument may be easily understood as a regular interest paid to the investors by companies who issues debt instruments for raising money.
Money Market Funds
A kind of debt mutual fund, the money market fund trades in short-term, highly liquid assets. Money Market Funds are debt funds that lend to businesses for up to a year. These Funds are structured in such a way that the fund management may create better returns while keeping risk under control by adjusting lending length.
Longer loan terms generally result in larger returns. These assets comprise gold, liquid assets bonds, and debt-based equities with a high credit rating and a short maturity.
Hybrid Funds
Hybrid funds invest in both debt and equity instruments for a diverse portfolio. Hybrid mutual funds are open-ended funds that are dynamically regulated. This implies you may invest in them and withdraw from them at any time of year.
There is no contract to sign. In India, there are seven main types of hybrid funds. The fund manager’s primary goal is to profit from price increase across all asset classes while avoiding risk.
Balanced Funds
A balanced fund is a mutual fund that normally includes both equities and bonds. A mutual fund is a collection of stocks that shareholders may participate in. Balanced funds often adhere to a fixed investment portfolio of equities and debt instruments, like 70% equities and 30% bonds.
Bonds are financial securities that typically pay a consistent and set level of interest. A balanced mutual funds offer a certain freedom wherein the fund manager can shift between equity and debt investment depending upon the market.
Gilt Funds
Generally considered as a risk-free mutual fund investment, Gilt funds solely participate in government-issued debt instruments and equities. The duration of maturity varies as medium and long-term government securities are chosen for investment, and because the Reserve Bank of India (RBI) determines the interest rate, it is regarded as a low-risk investment choice.