Types of Mutual Funds in India: Equity, Debt, Solution Oriented and Hybrid Funds
This post was most recently updated on January 2nd, 2024
Mutual funds are a popular investment option in India, providing investors with a diverse range of investment opportunities to suit their financial goals and risk tolerance. There are various types of mutual funds available in India, each with its own unique set of characteristics and benefits.
In this article, we’ll take a closer look at the types of mutual funds in India, including equity funds, debt funds, hybrid funds, index funds, and sector funds.
Consider reading: Top 10 Best Mutual Funds for SIP
Page Contents
Overview of Types of Mutual Funds in India
As per AMFI India, there are more than 17000+ different mutual funds available to invest in India. As a retail investor, it often becomes challenging to understand the difference between different types of mutual funds in India.
The types of mutual funds in India can be broadly categorized into two categories:
- Close-ended mutual funds
- Open-ended mutual funds
Different Types of Close-Ended Mutual Funds
Different types of Open-Ended Mutual Funds
Different Types of Equity Mutual Funds
Here is a snapshot of the different types of equity mutual funds in India:
Equity Mutual Fund Categorization
On October 6, 2017, SEBI came out with circular to categorize equity mutual funds based on below criteria:
| Category of Schemes | Scheme Characteristics | Type of scheme (uniform description of the scheme) |
|---|---|---|
| Multi-Cap Fund | Minimum investment in equity & equity-related instruments- 65% of total assets | Multi Cap Fund- An open-ended equity scheme investing across large cap, mid cap, small cap stocks |
| Large Cap Fund | Minimum investment in equity & equity related instruments of large cap companies- 80% of total assets | Large Cap Fund- An open-ended equity scheme predominantly investing in large-cap stocks |
| Large & Mid Cap Fund | Minimum investment in equity & equity related instruments of large cap companies- 35% of total assets Minimum investment in equity & equity related instruments of mid cap stocks- 35% of total assets | Large & Mid Cap Fund- An open ended equity scheme investing in both large cap and mid cap stocks |
| Mid Cap Fund | Minimum investment in equity & equity related instruments of mid cap companies- 65% of total assets | Mid Cap Fund- An open ended equity scheme predominantly investing in mid cap stocks |
| Small-cap Fund | Minimum investment in equity & equity related instruments of small cap companies- 65% of total assets | Small Cap Fund- An open ended equity scheme predominantly investing in small cap stocks |
| Dividend Yield Fund | Scheme should predominantly invest in dividend yielding stocks. Minimum investment in equity- 65% of total assets | An open ended equity scheme predominantly investing in dividend yielding stocks |
| Value Fund* | Scheme should follow a value investment strategy. Minimum investment in equity & equity related instruments – 65% of total assets | An open ended equity scheme following a value investment strategy |
| Contra Fund* | Scheme should follow a contrarian investment strategy. Minimum investment in equity & equity related instruments – 65% of total assets | An open ended equity scheme following contrarian investment strategy |
| Focused Fund | A scheme focused on the number of stocks (maximum 30) Minimum investment in equity & equity related instruments – 65% of total assets | An open ended equity scheme investing in maximum 30 stocks (mention where the scheme intends to focus, viz.,multi cap, large cap, mid cap, small cap) |
| Sectoral/ Thematic | Minimum investment in equity & equity related instruments of a particular sector/ particular theme- 80% of total assets | An open ended equity scheme investing in __ sector (mention the sector)/ An open ended equity scheme following __ theme (mention the theme) |
| ELSS | Minimum investment in equity & equity related instruments – 80% of total assets (in accordance with Equity Linked Saving Scheme, 2005 notified by Ministry of Finance) | An open ended equity linked saving scheme with a statutory lock in of 3 years and tax benefit |
Different Types of Debt Mutual Funds
Here is a snapshot of different types of debt mutual funds in India:
Debt Mutual Fund Categorization
On October 6, 2017, SEBI came out with circular to categorize debt mutual funds based on below criteria:
| Category of Schemes | Scheme Characteristics | Type of scheme (uniform description of the scheme) |
|---|---|---|
| Overnight Fund | Investment in overnight securities having maturity of 1 day | An open ended debt scheme investing in overnight securities |
| Liquid Fund | Investment in Debt and money market securities with maturity of upto 91 days only | An open ended liquid scheme |
| Ultra Short Duration Fund | Investment in Debt & Money Market instruments such that the Macaulay duration of the portfolio is between 3 months – 6 months | An open ended ultra-short term debt scheme investing in instruments with Macaulay duration between 3 months and 6 months |
| Low Duration Fund | Investment in Debt & Money Market instruments such that the Macaulay duration of the portfolio is between 6 months- 12 months | An open ended low duration debt scheme investing in instruments with Macaulay duration between 6 months and 12 months |
| Money Market Fund | Investment in Money Market instruments having maturity upto 1 year | An open ended debt scheme investing in money market instruments |
| Short Duration Fund | Investment in Debt & Money Market instruments such that the Macaulay duration of the portfolio is between 1 year – 3 years | An open ended short term debt scheme investing in instruments with Macaulay duration between 1 year and 3 years |
| Medium Duration Fund | Investment in Debt & Money Market instruments such that the Macaulay duration of the portfolio is between 3 years – 4 years | An open ended medium term debt scheme investing in instruments with Macaulay duration between 3 years and 4 years |
| Medium to Long Duration Fund | Investment in Debt & Money Market instruments such that the Macaulay duration of the portfolio is between 4 – 7 years | An open ended medium term debt scheme investing in instruments with Macaulay duration between 4 years and 7 years |
| Long Duration Fund | Investment in Debt & Money Market Instruments such that the Macaulay duration of the portfolio is greater than 7 years | An open ended debt scheme investing in instruments with Macaulay duration greater than 7 years |
| Dynamic Bond | Investment across duration | An open ended dynamic debt scheme investing across duration |
| Corporate Bond Fund | Minimum investment in corporate bonds- 80% of total assets (only in highest rated instruments) | An open-ended debt scheme predominantly investing in highest rated corporate bonds |
| Credit Risk Fund | Minimum investment in corporate bonds- 65% of total assets (investment in below highest rated instruments) | An open ended debt scheme investing in below highest rated corporate bonds |
| Banking and PSU Fund | Minimum investment in Debt instruments of banks, Public Sector Undertakings, Public Financial Institutions- 80% of total assets | An open ended debt scheme predominantly investing in Debt instruments of banks, Public Sector Undertakings, Public Financial Institutions |
| Gilt Fund | Minimum investment in Gsecs- 80% of total assets (across maturity) | An open ended debt scheme investing in government securities across maturity |
| Gilt Fund with 10 year constant duration | Minimum investment in Gsecs- 80% of total assets such that the Macaulay duration of the portfolio is equal to 10 years | An open ended debt scheme investing in government securities having a constant maturity of 10 years |
| Floater Fund | Minimum investment in floating rate instruments- 65% of total assets | An open ended debt scheme predominantly investing in floating rate instruments |
Different Types of Hybrid Mutual Funds
Here is a snapshot of different types of hybrid mutual funds in India:
Hybrid Mutual Fund Categorization
On October 6 2017, SEBI came out with circular to categorize hybrid mutual funds based on below criteria:
| Category of Schemes | Scheme Characteristics | Type of scheme (uniform description of the scheme) |
|---|---|---|
| Conservative Hybrid Fund | Investment in equity & equity related instruments- between 10% and 25% of total assets; Investment in Debt instruments- between 75% and 90% of total assets | An open ended hybrid scheme investing predominantly in debt instruments |
| Balanced Hybrid Fund | Equity & Equity related instruments- between 40% and 60% of total assets; Debt instruments- between 40% and 60% of total assets No Arbitrage would be permitted in this scheme | An open ended balanced scheme investing in equity and debt instruments |
| Aggressive Hybrid Fund | Equity & Equity related instruments- between 65% and 80% of total assets; Debt instruments- between 20% 35% of total assets | An open ended hybrid scheme investing predominantly in equity and equity related instruments |
| Dynamic Asset Allocation or Balanced Advantage | Investment in equity/ debt that is managed dynamically | An open ended dynamic asset allocation fund |
| Multi-Asset Allocation | Invests in at least three asset classes with a minimum allocation of at least 10% each in all three asset classes | An open-ended scheme investing in multiple asset classes |
| Arbitrage Fund | Scheme following arbitrage strategy. Minimum investment in equity & equity related instruments- 65% of total assets | An open ended scheme investing in arbitrage opportunities |
| Equity Savings | Minimum investment in equity & equity related instruments- 65% of total assets and minimum investment in debt- 10% of total assets Minimum hedged & unhedged to be stated in the SID. Asset Allocation under defensive considerations may also be stated in the Offer Document | An open ended scheme investing in equity, arbitrage and debt |
Different types of Solution-Oriented Mutual Funds
Here are the different types of Solution-oriented mutual funds in India:
Solution-Oriented Mutual Fund Categorization
On October 6, 2017, SEBI came out with circular to categorize Solution-oriented mutual funds based on below criteria:
| Category of Schemes | Scheme Characteristics | Type of scheme (uniform description of the scheme) |
|---|---|---|
| Retirement Fund | Scheme having a lock-in for at least 5 years or till retirement age whichever is earlier | An open-ended retirement solution-oriented scheme having a lock-in of 5 years or till retirement age (whichever is earlier) |
| Children’s Fund | Scheme having a lock-in for at least 5 years or till the child attains age of majority whichever is earlier | An open ended fund for investment for children having a lock-in for at least 5 years or till the child attains age of majority (whichever is earlier) |
Different types of other Mutual Funds Schemes
Here is a snapshot of different types of other category mutual funds in India:
Other Schemes of Mutual Fund Categorization
| Category of Schemes | Scheme Characteristics | Type of scheme (uniform description of scheme) |
|---|---|---|
| Index Funds/ ETFs | The minimum investment in securities of a particular index (which is being replicated/ tracked)- 95% of total assets | An open ended scheme replicating/ tracking _ index |
| FoFs – Fund of funds (Overseas/ Domestic) | Minimum investment in the underlying fund- 95% of total assets | An open ended fund of fund scheme investing in other mutual funds. |
Consider reading – Index fund vs ETF
Types of Mutual Funds in India: How to Select the Right Fund Type
Choosing the right mutual fund in India involves several considerations. Here’s a guide to help you select a fund that aligns with your investment goals, risk tolerance, and financial needs:
Understanding Different Types of Mutual Funds in India
- Equity Funds: Invest primarily in stocks. Suitable for investors with a high-risk appetite, looking for long-term growth.
- Debt Funds: Focus on fixed-income securities like bonds. They offer lower risk compared to equity funds and are suitable for conservative investors seeking stable returns.
- Hybrid Funds: A mix of equity and debt investments. Ideal for investors seeking a balance between risk and return.
- Index Funds: Track a specific market index. They are a passive investment option with lower expense ratios.
- Sectoral or Thematic Funds: Invest in specific sectors or themes. They carry higher risk due to concentration in a particular sector.
- Liquid Funds: Invest in short-term money market instruments. Ideal for short-term investments with minimal risk.
- Tax-saving Funds (ELSS): Offer tax benefits under Section 80C of the Income Tax Act but come with a lock-in period.
Key Considerations for Selection
- Investment Horizon: Determine the duration for which you plan to stay invested. Long-term goals are generally better suited for equity funds, while short-term objectives may be met with debt or liquid funds.
- Risk Tolerance: Assess your willingness to withstand market fluctuations. Higher risk could potentially lead to higher returns and vice versa.
- Liquidity Needs: Consider how quickly you might need to convert your investment into cash. Liquid funds offer high liquidity, whereas equity funds are more suited for long-term investments where liquidity is not a primary concern.
- Financial Goals: Align your choice of mutual fund with your financial objectives, whether it’s wealth creation, saving for retirement, or funding a short-term need.
- Performance History: Look at the fund’s past performance, although it’s not an indicator of future results. Assess consistency in performance across different market cycles.
- Expense Ratio and Exit Load: Lower expense ratios can lead to higher net returns. Also, understand the exit load, if any, which is a fee for withdrawing your investment before a specified period.
- Fund Manager’s Track Record: The expertise and experience of the fund manager can significantly impact the fund’s performance.
What is the risk involved in different types of mutual funds?
When considering the risks associated with different types of mutual funds, it’s important to understand that each fund type has its own risk profile based on the assets it holds.
- Equity Mutual Funds: These funds invest primarily in stocks and are considered to have higher risk. The returns are closely tied to the performance of the stock market. When the market is bullish, these funds can offer substantial returns, but during bearish phases, there’s a risk of significant losses. Equity funds are suitable for investors with a higher risk tolerance and a longer investment horizon.
- Hybrid Mutual Funds: These funds invest in a combination of stocks and debt instruments. The risk level is generally lower than pure equity funds due to the stabilizing presence of debt investments. However, they still carry a moderate level of risk as a part of the portfolio is exposed to stock market volatility. Hybrid funds are suitable for investors looking for a balance between risk and return.
- Debt Mutual Funds: These funds invest in fixed-income securities like government bonds, corporate bonds, treasury bills, and other debt instruments. They are considered to have lower risk compared to equity and hybrid funds. The returns are generally more stable and predictable. However, debt funds are not entirely risk-free. They can be affected by interest rate changes, credit risk (risk of default by the bond issuer), and market liquidity. Recent instances have shown that certain debt funds can incur significant losses, emphasizing the need for careful fund selection.
Read more about – Are debt funds safe?
Types of Mutual Funds in India – How to Select a Mutual Fund?
Before you select a mutual fund to invest in. You must evaluate the fund. Here are the 5 factors you must consider before selecting a fund:
- What is the Long Term Record of the Mutual fund?
- Who is the Fund Manager for the mutual fund?
- What is the track record of the AUM for the Fund?
- What is the Risk vs Return Record for the fund?
- What is the TER for the Fund?
Read more about selecting a mutual fund here: How to select mutual funds in India?
Final Thoughts on Types of Mutual Funds in India
In conclusion, mutual funds are a popular investment option in India, providing investors with a diverse range of opportunities to suit their financial goals and risk tolerance. From equity funds and debt funds to hybrid funds, index funds, and sector funds, there are various types of mutual funds in India to suit different investment objectives. It’s important to understand the characteristics and benefits of each type of mutual fund before making a decision.
By considering factors such as risk, return potential, fees, and diversification, investors can choose the right type of mutual fund to meet their investment goals. So, take the time to evaluate your investment needs and choose the right type of mutual fund to achieve financial success and stability.
FAQs on Types of Mutual Funds in India
What are the 4 types of mutual funds?
The four primary types of mutual funds are money market funds, bond funds, stock (or equity) funds, and target date funds. Money market funds are low risk, bond funds focus on fixed-income investments, stock funds aim for growth by investing in shares of companies, and target date funds adjust asset allocation based on a specified retirement timeline.
How many mutual funds are there in India?
India boasts over 2,500 mutual fund schemes, provided by 44 AMFI-registered fund houses. This extensive selection caters to diverse investor needs but choosing the ideal scheme requires careful consideration.
What is the safest mutual fund category?
The safest mutual fund category is typically indexed or bond funds due to their lower market risk and stable returns. These funds often have a diversified portfolio which mitigates risk and makes them a safer option for conservative investors.
