Different Type of Mutual Funds

 

Different Type of Mutual Funds

Mutual Fund is an investment platform where money is collected from various investors to invest in a pool or portfolio of different stocks or assets. There are various classifications of mutual funds.
Let’s understand the different type of Mutual Funds:

On the Basis of Structure
There are three types of Mutual fund on the basis of structure of the mutual fund scheme:

1. Open-Ended Funds: Open-ended funds does not have any fixed maturity date which means investors can buy or sell units at any time as per their choice. One can exit from open-ended funds whenever they want to, no time period is bounded for this. Thus, these funds are considered as liquid funds.

2. Closed-Ended Funds: Closed-ended funds have fixed maturity date which means investors cannot buy or sell units all the time. These funds are available for subscription for the specified period of time only. Some close-ended funds also have a pre-defined unit capital to invest.

3. Interval Funds: Interval funds exhibits the traits of both open-ended and closed-ended funds. These funds are open for buy or sell only during specific intervals which is decided by the fund house and closed for the rest of time. Also, no transactions will be permitted for at least first two years. These funds can be traded in stock exchange at pre decided intervals.

On the Basis of Asset Class
There are Four types of Mutual fund on the basis of asset class:

1. Equity Funds: In equity funds, majority of the investments is made by investing in stocks. Profit and losses made by equity funds are solely depends on how the stock performs. It has potential of high returns and hence the risk associated with it is comparatively higher. Equity funds are suitable for long term investment.

2. Debt Funds: In Debt funds, majority of the investments is made by investing in fixed-income securities such as bonds, securities and treasury bills. It has lesser risk and hence the income is regular and stable wuth moderate returns. Also, the investments come with a fixed interest rate and maturity date.

3. Money Market Funds: In money market funds, investors invest in the money market. It is also known as capital market or cash market. The government runs it in association with banks, financial institutions and many other corporations by issuing money market securities like bonds, T-bills, dated securities and certificates of deposits etc. It has high liquidity and moderate returns making is best suited for short term investments.

4. Hybrid Funds: Hybrid Funds are also call Balanced funds. In this, money is invested in both and equity and debt funds. The investment ratio for equity and debt funds can either be variable or fixed. It has moderate growth and stable returns.


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