Mutual Fund Type Part-1

Mutual Funds are divided basically into 2 parts

1.       On the basis of Objective

2.       On the basis of flexibility

On the basis of Objective

Equity Funds /Growth Funds

Main objective is to invest in shares and give capital appreciation to investors. This is again divided into 8 parts

·         Diversified Funds

·         Sector Specific l Funds

·         Index Funds

·         Tax Saving Funds

·         Debt/Income Funds

·         Liquid Funds/Money Market Funds

·         Gilt Funds

·         Balanced Funds

Diversified Fund –

The investors money is invested across various sector like power ,FMCG,Retail etc . It is Risk Averse for the investor.

Sector Specific l Funds –

Here the investor’s money is invested in only one sector shares. Like only in FMCG.This type of funds are best for those who are bullish on any specific sector.

Index Funds –

Index funds are generally invested in only in index such as CNX 500.The money collected from investors only invested in those specific index representing shares. For e.g. a Nifty index fund will invest only in the Nifty 50 stocks. The objective of such funds is not to beat the market but to give a return equivalent to the market returns.

Tax Saving Funds-

These mutual funds are basically for 80c investment purpose for income tax rebate.

Debt/Income Funds-

These funds invest predominantly in high-rated fixed-income-bearing instruments like bonds, debentures, government securities, commercial paper and other money market instruments. They are best suited for the medium to long-term investors who are averse to risk and seek capital preservation. They provide a regular income to the investor.

Liquid Funds/Money Market Funds-

These funds invest in highly liquid money market instruments. The period of investment could be as short as a day. They provide easy liquidity. They have emerged as an alternative for savings and short-term fixed deposit accounts with comparatively higher returns. These funds are ideal for corporate, Institutional investors and business houses that invest their funds for very short periods.

Gilt Funds-

These funds invest in Central and State Government securities. Since they are Government backed bonds they give a secured return and also ensure safety of the principal amount. They are best suited for the medium to long-term investors who are averse to risk.

Balanced Funds

These funds invest both in equity shares and fixed-income-bearing instruments (debt) in some proportion. They provide a steady return and reduce the volatility of the fund while providing some upside for capital appreciation. They are ideal for medium to long-term investors who arewilling to take moderate risks.

On the basis of flexibility

·         Open-ended Funds

·         Close-ended Funds

Open-ended Funds-

These funds do not have a fixed date of redemption. Generally they are open for subscription and redemption throughout the year. Their prices are linked to the daily net asset value (NAV). From the investors' perspective, they are much more liquid than closed-ended funds.

Close-ended Funds-

These funds are open initially for entry during the Initial Public Offering (IPO) and thereafter closed for entry as well as exit. These funds have a fixed date of redemption. One of the characteristics of the close-ended schemes is that they are generally traded at a discount to NAV; but the discount narrows as maturity nears. These funds are open for subscription only once and can be redeemed only on the fixed date of redemption. The units of these funds are listed on stock exchanges (with certain exceptions), are tradable and the subscribers to the fund would be able to exit from the fund at anytime through the secondary market.