Mutual funds can be classified in different ways based on their investment objective, asset class, investment strategy, and other factors. Some common classifications of mutual funds are:
- Based on investment objective:
a. Equity funds: These mutual funds primarily invest in stocks of companies. They are suitable for investors with a high-risk appetite and a long-term investment horizon.
b. Debt funds: These mutual funds invest in fixed-income securities such as government bonds, corporate bonds, and money market instruments. They are suitable for investors with a low to moderate risk appetite and a short to medium-term investment horizon.
c. Hybrid funds: These mutual funds invest in both equity and debt instruments in varying proportions. They are suitable for investors with a moderate risk appetite and a medium to long-term investment horizon.
d. Solution-oriented funds: These mutual funds are designed to meet specific financial goals such as retirement planning, child education, or marriage. They have a lock-in period and certain eligibility criteria. - Based on asset class:
a. Equity funds
b. Debt funds
c. Gold funds: These mutual funds invest in gold and gold-related instruments. They provide an opportunity to invest in gold without owning physical gold.
d. Real estate funds: These mutual funds invest in real estate assets such as residential or commercial properties. - Based on investment strategy:
a. Active funds: These mutual funds are actively managed by fund managers who try to outperform the benchmark index by selecting stocks or securities that they believe will generate higher returns.
b. Passive funds: These mutual funds aim to replicate the performance of a benchmark index by investing in the same securities or stocks as the index. Exchange-traded funds (ETFs) are a popular type of passive mutual funds.
c. Index funds: These mutual funds invest in a specific index, such as the Nifty 50 or BSE Sensex. They aim to match the performance of the index and have lower expense ratios than actively managed funds. - Based on structure:
a. Open-ended funds: These mutual funds have no limit on the number of units that can be issued. Investors can buy and sell units at any time at the prevailing Net Asset Value (NAV).
b. Close-ended funds: These mutual funds have a fixed number of units that are issued during the initial public offering. The units can be traded on the stock exchange, but the fund is usually liquidated after a specified period.
c. Interval funds: These mutual funds combine the features of open-ended and close-ended funds. They issue units during the initial public offering and allow investors to buy and sell units at specific intervals.
These are some of the common classifications of mutual funds, but there can be other variations based on the investment objective, asset class, and investment strategy.