Continuing our exploration, let’s now categorize Mutual Funds based on –
Based On Structure:
- Open-Ended Funds
These funds offer investors the flexibility to buy and sell units at any time, based on the current Net Asset Value (NAV). They have no fixed maturity date, providing high liquidity. - Closed-Ended Funds
Unlike open-ended funds, these have a fixed maturity period and a limited number of units. Investors can only purchase units during the initial New Fund Offer (NFO) period. After that, units are typically traded on stock exchanges until the fund’s maturity date.
Based on Investment Objective/Goal:
Next, we’ll categorize funds Based on Investment Objective or Goal:
- Growth Funds
These funds aim for capital appreciation – growing your investment over time – by focusing on companies with high growth potential. - Income Funds
The primary goal of these funds is to generate a steady stream of income for investors, achieved by investing in fixed-income securities. - Liquid Funds
Invest in very short-term debt instruments (with a maturity of up to 91 days). They offer very high liquidity and minimal risk, making them an excellent choice for parking surplus funds for a short duration. - Tax-Saving Funds (ELSS)
Highly popular in India, ELSS funds offer significant tax benefits under Section 80C of the Income Tax Act. They come with a mandatory 3-year lock-in period. - Retirement Funds
Specifically designed to help investors achieve their retirement goals, these funds typically have a long-term investment horizon and may include a lock-in period. - Children’s Funds
These funds are designed for saving towards a child’s future (education, etc.), and often come with a lock-in period to encourage long-term investment. - Capital Protection Funds
The primary focus of these funds is to safeguard the initial investment (the principal amount) while still aiming to generate modest returns.
Other Categories:
Finally, here are some Other Categories of Mutual Funds:
- Index Funds
These are passive funds that aim to mirror the performance of a specific market index (e.g., Nifty 50, Sensex). They achieve this by holding the same securities in the same proportions as the index itself. A key advantage is their typically lower expense ratios. - Exchange Traded Funds
Similar to index funds in their composition, ETFs are traded on stock exchanges, just like individual stocks. - Fund of Funds (FoF)
Instead of directly investing in stocks or bonds, these mutual funds invest in other mutual fund schemes. This can provide investors with diversification across different fund managers or a wider range of asset classes. - International Funds
These funds provide investors with global diversification by investing in assets located outside their home country. - Commodity Funds
These funds invest in companies involved in commodity-intensive industries, or directly in commodities like gold, silver, and other raw materials. - ESG Funds
These funds incorporate environmental, social, and governance (ESG) factors into their investment selection process, appealing to socially conscious investors.