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The Types Of Mutual Funds You Can Invest In India

Confused about all the different types of mutual funds out there? You’re not the first one. Luckily we’ve simplified all the different fund types right here. To help you understand the difference between everything from ELSS funds, Liquid funds & Equity funds to Debt Funds. Let’s start by understanding the basics of mutual funds.

Rishabh P Nair
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Confused about all the different types of mutual funds out there? You’re not the first one. Luckily we’ve simplified all the different fund types right here. To help you understand the difference between everything from ELSS funds, Liquid funds & Equity funds to Debt Funds. Let’s start by understanding the basics of mutual funds.

What Is A Mutual Fund?

A mutual fund is, in simplified terms, a large pool of money that is managed by a professional fund manager. This fund manager (or multiple fund managers) invest(s) this money in stocks, bonds, and other securities. The goal is to manage the money in a manner that investors get a good return. A mutual fund is, therefore, considered safer than buying stocks directly. Depending on the kind of asset a mutual fund invests in it is further divided into multiple categories. Let’s take a look at these different types of mutual funds.  Before adopting any investment strategy, it's advisable to download the Cube Wealth app and consult a Cube Wealth Coach who can provide guidance based on your risk tolerance.

Equity Funds

Equity funds are mutual funds that primarily invest in stocks.

1. They own shares of companies & this is why Equity Funds are also called stock mutual funds.

2. Equity Funds are categorized by the size of the companies they are invested in.

3. The holdings they have in their portfolio and the geographical location of the company.‍

Debt Funds

Debt funds or Bond funds are mutual funds that invest in government bonds, liquid funds, treasury bills and other fixed-income securities.

1. Since they do not invest in equities and invest in fixed income instruments they are considered safer than equity funds.

2. However, there is no guarantee on this low-risk investment. Returns are expected in a predictable range making Debt Mutual Funds a favourite for conservative investors.

3. Debt Mutual Funds are managed by professional Fund Managers that have strategies they diversify and align their fund to.

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Money Market Funds

Money market funds are also debt mutual funds but these funds invest in short term instruments. 

1. They usually invest for periods of 12 months, with the aim to maintain high liquidity.

2. High-risk, money market funds can also invest in corporate debt which can lose value during volatile markets situations.

3. These funds are not insured by the Federal Deposit Insurance Corporation.

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Index Funds

The concept of an Index Fund is fairly simple - it imitates the whole portfolio of the market. 

1. So, for example, an index fund that imitates the NIFTY 50 will invest in all the funds mirroring the market.

2. The cost of managing these mutual funds is lower and they are fast becoming popular in India as well.

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Balanced Funds

As the name suggests, balanced funds tend to spread their investments across asset classes. 

1. They have a healthy mix of low-risk, medium-risk and high-risk assets. These assets also range across stocks, bonds and other securities. 

2. They have a combination of debt and equity to achieve their goal of balanced portfolios. 

3. These funds are also referred to as hybrid funds.

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Fixed Income Funds

A fixed-income fund is a type of mutual fund that aims at giving investors returns at regular intervals.

1. The fixed-income, in this case, can come monthly, quarterly, half-yearly or even annually.

2. This fixed-income that investors get by investing in such a fund is based on a set percentage and may not be the same amount at each payout.

3. Fixed income funds invest in government bonds, corporate bonds and other such securities.

4. Due to the fixed term of these funds, the returns are also reasonably predictable but depend on the performance of the fund.

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Before adopting any investment strategy, it's advisable to download the Cube Wealth app and consult a Cube Wealth Coach who can provide guidance based on your risk tolerance.

Fund of Funds

This is what you could call Christopher Nolan’s version of a mutual fund. It isn’t one fund but many.

1. They are also called multi-manager funds. Funds of funds (FOF) do not directly invest in stocks, bonds and other securities like most mutual funds.

2. Instead, they invest in multiple mutual funds. This makes funds of funds a large pool of several other funds.

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Specialty Funds

Specialty funds get their name from their approach towards investments. 

1.These funds are mutual funds or other funds that focus on one particular sector, geographical region or industry.

2. A good example of this would be funds that invest in renewable energy or power etc.

3. These funds reflect a specific view and can reflect an investor’s personal belief about the nature of industries, sectors or show a bias towards anyone “speciality”.

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FAQs

1. What are the different types of Mutual Funds?

Ans. Usually Mutual Funds are categorised mainly under these four categories: Equity mutual funds, Money market mutual funds, Bond funds, and Balanced funds.

2. What are the best Mutual Funds to invest in?

Ans. One should opt for the type of Mutual Funds that can help them achieve their financial goals in the long-term. You may speak to a Wealth Coach for individualised support and make investments that align best with your financial goals and risk tolerance.

3. What does a Mutual Fund manager do?

Ans. A mutual fund manager is a professional investor who chooses how to invest the money of a mutual fund scheme's unitholders. They work to meet the fund's goals and outperform the benchmark in terms of returns. They routinely keep an eye on the fund's performance and risk.

4. What are the pros and cons of investing in Mutual Funds?

Ans. The benefits of mutual funds include the availability of professional experience through fund managers, cheap fees, and the flexibility to diversify a portfolio across industries. The drawbacks of mutual funds include the fact that they do not provide investors ownership of the underlying holdings; as a result, they have little influence over the structure and constituents of mutual funds. Compared to index funds, mutual funds are also more expensive and risky.

5. Are Mutual Funds safe for beginners?

Ans. Mutual Funds are regulated under Wealth Coaches and experts. They offer complete safety and transparency which makes them a safer investment option for beginners. Once you understand how they work, Mutual Funds can offer a lot of benefits. It is wiser to consult a Wealth Coach before making any investment choices to understand your risk tolerance and financial goals.

You can also watch Cube Wealth’s Perfect Portfolio builder guide

Rishabh P Nair

Rishabh P Nair is the Head Of Brand Content at Cube Wealth. Rishabh has been weaving stories for over 10 years and prides himself on building brands with a strong identity.

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