Types of mutual funds

What are the different types of mutual funds and how they are categorized?

Overview

Though the topic could sound very basic to many, for many others it would be a helpful guide to better understand mutual funds as an investment option.

Mutual funds offer schemes for varied investment objectives and risk appetites and each category fulfills a unique role in an investor’s portfolio.

AMFI Fund categorization

As per SEBI guidelines on Categorization and Rationalization of schemes issued in October 2017, mutual fund schemes are classified as

  • Equity Schemes
  • Debt Schemes
  • Hybrid Schemes
  • Solution-Oriented Schemes – For Children or Retirement
  • Other Schemes – Index funds, ETFs, FOFs

Equity Schemes

Equity schemes primarily invest in equities and equity-related instruments are classified into the following categories and sub-categories.

  • Based on market caps
    • Large Cap Fund
    • Large & Mid Cap Fund
    • Multi Cap Fund
    • Flexi Cap Fund
    • Mid Cap Fund
    • Small Cap Fund
  • Based on a specific strategy
    • Value Fund
    • Contra Fund
    • Dividend-yield Fund
    • Focused Fund
    • E.L.S.S. Fund
  • Sectorial and Thematic
    • Technology and related sector
    • Infrastructure Fund
    • FMCG Fund
    • Banking & Finance Fund
    • Others
    • Pharma and healthcare

Sectoral funds invest in a particular sector of the economy such as infrastructure, banking, technology, pharmaceuticals, etc.  Since these funds focus on just one sector of the economy, they limit diversification and are thus riskier.

Thematic funds select stocks of companies in industries that belong to a particular theme – For example, Infrastructure, Service industries, PSUs, or MNCs. They are more diversified than Sectoral Funds and hence have lower risk than Sectoral Funds.

Snapshot

Multi Cap FundAt least 75% investment in equity & equity related instruments
Flexi Cap FundAt least 65% investments in equity & equity related instruments
Large Cap FundAt least 80% investment in large-cap stocks
Large & Mid Cap FundAt least 35% investment in large-cap stocks and 35% in mid-cap stocks
Mid Cap FundAt least 65% investment in mid-cap stocks
Small Cap FundAt least 65% investment in small-cap stocks
Dividend Yield FundPredominantly invest in dividend-yielding stocks, with at least 65% in stocks
Value FundValue investment strategy, with at least 65% in stocks
Contra FundThe scheme follows a contrarian investment strategy with at least 65% in stocks
Focused FundFocused on the number of stocks (maximum 30) with at least 65% in equity & equity related instruments
Sectoral/ Thematic FundAt least 80% investment in stocks of a particular sector/ theme
ELSSAt least 80% in stocks following Equity Linked Saving Scheme, 2005, notified by the Ministry of Finance

Debt Schemes

A debt fund invests primarily in bonds or other debt securities. Debt schemes are classified into the following categories and sub-categories

  • Based on Tenure
    • Overnight Fund
    • Liquid Fund
    • Ultra Short Duration Fund
    • Low Duration Fund
    • Money Market Fund
    • Short Duration Fund
    • Medium Duration Fund
    • Medium to Long Duration Fund
    • Long duration Fund
  • Based on Issuer
    • Gilt Fund
    • Corporate Bond Fund
    • Infrastructure Debt Fund
    • Others
  • Based on Investment Strategy
    • Floater Rate Fund
    • Dynamic Bond Fund
    • Ohers

Snapshot

Overnight FundOvernight securities having maturity of 1 day
Liquid FundDebt and money market securities with maturity of upto 91 days only
Ultra Short Duration FundDebt & Money Market instruments with Macaulay duration of the portfolio between 3 months – 6 months
Low Duration FundInvestment in Debt & Money Market instruments with Macaulay duration portfolio between 6 months- 12 months
Money Market FundInvestment in Money Market instruments having maturity upto 1 Year
Short Duration FundInvestment in Debt & Money Market instruments with Macaulay duration of the portfolio between 1 year – 3 years
Medium Duration FundInvestment in Debt & Money Market instruments with Macaulay duration of portfolio between 3 years – 4 years
Medium to Long Duration FundInvestment in Debt & Money Market instruments with Macaulay duration of the portfolio between 4 – 7 years
Long Duration FundInvestment in Debt & Money Market Instruments with Macaulay duration of the portfolio greater than 7 years
Dynamic BondInvestment across duration
Corporate Bond FundMinimum 80% investment in corporate bonds only in AA+ and above rated corporate bonds
Credit Risk FundMinimum 65% investment in corporate bonds, only in AA and below rated corporate bonds
Banking and PSU FundMinimum 80% in Debt instruments of banks, Public Sector Undertakings, Public Financial Institutions and Municipal Bonds
Gilt FundMinimum 80% in G-secs, across maturity
Gilt Fund with 10 year constant DurationMinimum 80% in G-secs, such that the Macaulay duration of the portfolio is equal to 10 years
Floater FundMinimum 65% in floating rate instruments (including fixed rate instruments converted to floating rate exposures using swaps/ derivatives)

Hybrid Schemes

Hybrid fund categories invest in a mix of varying combinations of Equity, Debt securities, and other Asset Classes

  • Conservative Hybrid Fund
  • Balance Hybrid Fund
  • Aggressive Hybrid Fund
  • Dynamic Asset Allocation / Balanced Advantage Fund
  • Multi-Asset Allocation Fund
  • Arbitrage Fund
  • Equity Savings Fund

Snapshot

Conservative Hybrid Fund10% to 25% investment in equity & equity related instruments; and 75% to 90% in Debt instruments
Balanced Hybrid Fund40% to 60% investment in equity & equity related instruments; and 40% to 60% in Debt instruments
Aggressive Hybrid Fund65% to 80% investment in equity & equity related instruments; and 20% to 35% in Debt instruments
Dynamic Asset Allocation or Balanced Advantage FundInvestment in equity/ debt that is managed dynamically (0% to 100% in equity & equity related instruments; and 0% to 100% in Debt instruments)
Multi-Asset Allocation FundInvestment in at least 3 asset classes with a minimum allocation of at least 10% in each asset class
Arbitrage FundScheme following arbitrage strategy, with a minimum 65% investment in equity & equity related instruments
Equity SavingsEquity and equity-related instruments (min.65%); debt instruments (min.10%) and derivatives (min. for hedging to be specified in the SID)

Solution-Oriented Schemes

  • Retirement Funds
  • Children’s Fund

Snapshot

Retirement FundLock-in for at least 5 years or till retirement age whichever is earlier
Children’s FundLock-in for at least 5 years or till the child attains the age of majority whichever is earlier

Other Schemes

  • Index Fund
  • Exchange Traded Fund (ETF)
  • Fund of Fund (FOF)
  • International Fund
  • Target Maturity Fund
  • Capital Protection Oriented Fund
  • Fixed Maturity Fund (FMP)

Snapshot

Index FundsMinimum 95% investment in securities of a particular index
Fund of Funds (Overseas/ Domestic)Minimum 95% investment in the underlying fund(s)
Exchange Traded Funds (ETFs)Minimum 95% investment in securities of a particular index. ETFs are listed on stock exchanges. Unlike regular mutual funds, an ETF trades like a common stock on a stock exchange
International FundsEnable investments in markets outside India, by holding in their portfolio one or more of the following: Equity of companies listed abroad, ADRs and GDRs of Indian companies, Debt of companies listed abroad, ETFs of other countries, Units of passive index funds in other countries, Units of actively managed mutual funds in other countries.
Capital Protection Oriented FundsClose-ended hybrid funds that create a portfolio of debt instruments and equity derivatives.
Fixed Maturity Funds (FMPs)Cosed-ended funds that eliminate interest rate risk and lock in a yield by investing only in securities whose maturity matches the maturity of the fund.

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