In the investment market, you can find a list of mutual funds to choose from. There are various investors in the market with varied needs, objectives and risk profiles. So, one fund cannot satisfy all the preferences of the investors.
Classification of Mutual Funds
Normally, an MF is classified into two broad categories:
On the basis of execution and operation
On the basis of yield and investment pattern
The list of mutual funds based on execution and operation are:
Open-ended Fund In this scheme, the corpus and time of the fund is not prefixed. You can purchase and sell any number of units at any time. The main features of these funds are flexibility, instant liquidity, not traded publicly through any exchanges, ability to repurchase and resell and so on. The main purpose is income generation and their prices are associated to Net Asset Value (NAV) of the units.
Close-ended Fund In this scheme, the corpus and duration of the fund is pre-determined. The fund expires when the subscription reaches the fixed target. The main purpose is capital appreciation. Since these are traded on stock exchanges, any market trend (both favorable and unfavorable) affects the performance of the fund.
The list of mutual funds based on yield and investment pattern are:
Income Fund The main objective of this scheme is to generate and distribute income to the investors periodically. The income generated is usually higher than that from bank deposits. The investment pattern is usually oriented towards high and fixed income generating securities. This is the best option for retired people.
Growth Fund These funds concentrate in generating long term capital appreciation and do not provide any regular income. They are also referred to as Nest Eggs funds. The investment strategy is oriented towards equities which have high risk tolerance and high growth potential. This is best suitable if you are salaried or if you are a business person.
Balanced Fund These funds are a combination of income and growth mutual funds. They are also known as income-cum-growth funds. They mainly concentrate in allocating regular income along with capital gains. The investment pattern is generally balanced between securities providing high growth and fixed income.
Specialized Fund These funds are oriented towards the special needs of specific categories of people. This fund allows foreign investors to invest in domestic securities of other countries. They are usually confined to a particular sector or industry. These funds are highly risky and serve as a good option for high risk takers.
Money Market Mutual Fund (MMMF) These are similar to open-ended mutual funds and have all the features of an open-ended fund. But, the investment strategy varies as these are invested in money market instruments like treasury bills, commercial paper and the like.
Taxation Fund This fund is essentially a growth fund. The only difference is that it offers tax rebates to the investors. This is the most suited choice if you are a salaried person as you can enjoy tax discounts.
Few Other Classifications of Mutual Funds
Apart from the above-mentioned classification, there is another list of mutual funds. They are as follows:
Leveraged Fund Also referred as borrowed funds. They are mainly used to raise the value size of a fund portfolio.
Dual Fund These are a special form of close-ended fund. They give two different kinds of investors an opportunity to make a single investment.
Index Fund In this fund, the portfolios are designed in such a way that they move in accordance with the market index.
Bond Fund These are income generating funds. The portfolio mainly consists of securities like bonds which have the capacity to generate fixed income.
Aggressive Growth Fund These funds are more focused on capital gains. They are highly volatile and are usually invested in securities that are highly speculative.
Off-Shore Fund These funds are designed for non-residential investors. These funds are registered in foreign countries. They contain country and currency risk but the returns are high.
So, the decision to invest in mutual funds solely depends on your requirements and risk profile. You could pick a fund that suits your profile from the above list of mutual funds.
