Types Of Mutual Fund Schemes

Wide variety of Mutual Fund Schemes exists to cater to the needs such as financial position, risk tolerance and return expectations etc. Mutual Fund Schemes are categorized and classified very simply and logically, so you can figure out what each one implies.

In fact, the process of classification most times describes the very nature of the fund. So as you read on, you can understand for yourself which kind of fund you’d like to invest in, depending on what it is you want your money to do for you. The table below gives an overview into the existing types of schemes in the Industry.

By Scheme Structure

  • Open Ended Schemes
  • Close Ended Schemes
  • Interval Schemes

By Scheme Objective

  • Growth Schemes
  • Income Schemes
  • Balanced Schemes

Other Schemes

  • Tax Saving Schemes
  • Special Schemes
    • Index Schemes
    • Sector Specific Schemes

By Scheme Structure

Structure of the scheme uses the parameter of time, i.e. how long will the funds be invested, how soon can you redeem them and so on.

  1. Open Ended Funds : Such funds enable you to invest and redeem your money any time! Units are continuously offered for sale, and continuously bought back. Moreover, the schemes under which they’re sold are perpetual and do not have a fixed duration. Thus, if you want your money to be readily accessible to you, this is the kind of mutual fund you should go for.
  2. Close Ended Funds : The exact opposite of open ended funds. These schemes come with a fixed life! Unlike open-ended schemes, once the initial offer closes, there is no fresh sale of units. Normally, they do not offer repurchase and sale of repurchased units (though there are a few exceptions). However, as units of such funds are normally listed on one or more of the stock exchanges, you still will be able to get liquidity from the exchange itself.
  3. Interval Funds : These are a cross-breed between open and close-ended schemes! Such funds offer resale and repurchase of units at fixed intervals. There’s only one constraint – no sale or purchase of units takes place at any time other than the time fixed for this purpose

By Scheme Objective

This category is based on the various processes by which funds examine, analyze and then invest the securities in their portfolios. Thus:

  1. Growth Schemes : Invests primarily in Stocks. These schemes pick stocks with a high growth potential. Normally, such stocks have high price to earning ratios (P/E).
  2. Income Schemes : Invests in fixed-income securities and short-term money market instruments (including government securities). These schemes invest in instruments that yield high income.
  3. Balanced Schemes : Invests partly in stocks and partly in fixed-income securities, in order to maintain a ‘balance’ in returns and risk. These schemes take advantage of market cycles by shifting asset allocation from debt to equity and vice-versa to maximizing returns while minimizing risk.

Other Schemes

  1. Tax Saving Schemes : Tax Saving (ELSS) Schemes operate in conformity with the guidelines issued for Equity Linked Savings Schemes. Such schemes offer investors a tax deduction under Section 80C of the Income Tax Act upto a maximum of Rs.100,000. However, ELSS funds also prescribe a three year lock-in period during which the funds aren’t accessible.. These funds are also required to invest a minimum of 80 % of their corpus in equity and related securities.
  2. Index Schemes : these schemes invest in index scrips such as Nifty stocks comprising of NSE 50 companies or Sensex stocks comprising of BSE 30 companies. These schemes allocate assets to various companies within Sensex/Nifty based on the corresponding weight of the stock in the respective index. In ideal scenario performance of these schemes mirror the performance of respective index.
  3. Sector Specific Schemes : This method essentially attempts to segregate funds on the basis of the sector, sub-sector or the special focus area on which the fund’s investments are concentrated. Therefore, funds can be:
    1. FMCG Funds limit their investments to companies engaged in the business of Fast Moving Consumer Goods and other similar businesses.
    2. MNC Funds invest in multinationals and other similar companies.
    3. IT Funds invest in companies engaged in the business of Information Technology and other similar businesses.
    4. New Technologies Funds invest in companies engaged in new and emerging technologies and other similar businesses.
    5. Services Funds invest in companies engaged in the services sector.
    6. PSUs invest in Public Sector Undertakings and other similar companies.
    7. Infrastructure Funds invest in infrastructure and other similar companies.
    8. Pharmaceuticals and Healthcare Funds invest in companies engaged in the pharmaceuticals and healthcare business and other similar businesses.
    9. Petroleum Funds invest in petroleum companies.
    10. And so on…

2 thoughts on “Types Of Mutual Fund Schemes”

  1. I hope you can enhance the article by adding the new scheme introduced by HDFC named, flexi index fund. through this, you can start sip on selected debt or liquid fund and set 4 targets based on index level to auto transfer your money to index funds when sensex reaching to the target level.

    the four level work like this. If current level is 14k, you starting SIP now and setting first goal, trigger 25% to index fund when reaching to 12k. Trigger another 25% if it reaching to 10k, trigger whole amount when it reaching to 7K.

    This seems a good option but need to know the performance of debt fund to start SIP on it. Hope you will research on this and add another article on this blog.

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