Mutual funds can be classified into 2 categories based on investment objective and constitution. Based on the investment objective, there are 3 types of mutual funds; equity oriented, debt-oriented, and hybrid. Based on the constitution, there are 3 types of mutual funds as well; open-ended, close-ended, and interval.
1.OPEN-ENDED FUNDS: These schemes are open for investment all year long. These mutual funds don’t have a maturity date. Since they are open for investment all year long, they can also be redeemed at any point in time. Since these funds can be redeemed anytime, they are considered to be highly liquid. Mutual fund units can be bought and sold at the NAV price.
2.CLOSED-ENDED FUNDS: The maturity period of close-ended funds ranges from 3 – 15 years. The fund is open for investment for a stipulated period of time. Investors can invest during the initial public issue and the units can also be sold in the stock market.
3.INTERVAL FUNDS: Interval funds include features from both open-ended and closed-ended funds. They can be traded during a predetermined window.
BY INVESTMENT OBJECTIVE
1.BALANCED FUNDS: Balanced funds strike a balance between growth and regular income. This is done by reinvesting the earnings of the fund in both fixed income securities as well as equities. The NAV of these schemes stays at par with the market levels. This is best for people who want both growth and regular income.
2.NO-LOAD FUNDS: There is no commission charged for entry or exit in no-load funds. This basically means that you don’t have to pay any commission on the sale or purchase of mutual fund units. The main benefit to the investor is that their whole investment amount is put to work.
3.LOAD FUNDS: As opposed to a no-load fund, a load fund charges a commission for entry or exit. This basically means that whenever you buy or sell a mutual fund unit, you will have to pay a certain commission. The commission ranges from 1% to 2%.
4.INCOME FUNDS: As the name suggests, these funds provide the investor with a regular flow of income. The main constituents of this fund are fixed income securities like bonds, government securities, and corporate debentures. Income funds are ideal for people who want a regular stream of side income.
5.GROWTH FUNDS: As the name suggests, the main objective of this fund is capital appreciation over a period of 5 – 10 years. A large majority of the investment goes to equities. It is quite well known that stocks are capable of giving high levels of returns. This type of mutual fund is suitable for people who want capital appreciation over a period of 5 – 10 years.
6.MONEY MARKET FUNDS: Liquidity, a regular flow of income, and capital safety is the unique selling proposition of money market funds. The main constituents of money market funds are; certificate of deposit (COD), commercial paper (CP), treasury bills, and call money. These instruments are known to be safer in the short term. Returns from these funds are volatile and largely depend on the interest rate prevalent on these instruments. This fund is suitable for people who have a surplus and want to invest them for a short period of time.
So here you have it. These are some types of mutual funds. People, however, prefer to invest their money in open-ended funds, income funds, and growth funds. You must select a fund for your money which fulfills your needs and gives you exactly what you want over the longer or shorter period of time. You can also consult a financial advisor for the same.