Classification of Mutual Funds

Let’s know how mutual funds are classified into

I hope everyone reading this article is familiar with what mutual funds actually are. if you are not aware of the point, you can just know it and dive back into this article as only the classification of mutual funds is described in this article.

Ok, enough of that. let’s have a look at the main content

Mutual funds are broadly classified into three types

• Equity funds
• Debt funds
• Hybrid Funds

1. Equity Funds

• Equity funds invest our money in equity stocks/shares of companies.
• These are considered risky funds as returns are not guaranteed.
• However, these funds usually generate higher returns over a longer period of time.

Equity funds are again divided into its subclasses such as

Large-Cap funds

1. In large-cap funds, a large portion of the investment is done in companies with large market capitalization.
2. These companies are strong, reputable and trustworthy.

Middle-Cap funds

1. In middle-cap funds, a large portion of the investment is done in companies with medium market capitalization.
2. Stocks of mid-cap companies are riskier than larger-cap but not as risky investment instruments as small-cap

Small-Cap funds

1. Stocks of these companies are highly risky and volatile investment instruments

Multi-Cap funds

1. These funds invest in stocks of companies across the stock market regardless of size and sector.
2. These funds provide diversification by investing in companies spread across sectors and market capitalization.
3. These are generally meant for investors who seek exposure across the market and do not want to be restricted by any particular sector.

ELSS Funds

1. ELSS stands for Equity Linked Saving Scheme
2. It is a dedicated mutual fund scheme that allows investors to save tax under 80C of the Income Tax Act, 1961.
3. It has a lock-in period of three years and provides an opportunity for long-term capitalization.
4. ELSS funds invest in a diversified portfolio, predominantly consisting of equity and equity-related instruments that carry high risk and have the potential to deliver high returns over a long period.

Sector Funds

1. These funds invest in stocks of companies that operate in a particular industry or sector of the economy.

Eg: banking sector, etc.,

2. These funds are riskier than well-diversified ones and are more volatile due to holding in one particular sector.

and so on

2. Hybrid Funds

• These funds are investment instruments, where an asset management company invests in both debt and equity funds.
• These are diversified funds
• The higher the portion of investment into debt, the safer it is.

3. Debt Funds

These are classified into four types based on maturity period

Liquid Funds

1. These funds invest in money market investments having a maturity of a maximum of 91 days.
2. These are good alternatives for short-term investments

Money Market Funds

1. These funds invest in money market investments having a maturity of a maximum of 1 year.
2. These funds are good for investors seeking low-risk debt securities for the short term.

Dynamic Bond Funds

1. These funds invest in debt instruments of varying maturity based on interest rate regime.
2. These funds are good for investors with moderate risk tolerance and an investment horizon of 4 years.

and some other funds …

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