Know What Are The Types Of Mutual Funds Available In India And Where They Invest - Part - 2

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This article is continuation  of Know What Are The Types Of Mutual Funds Available In India And Where They Invest. If you have not read Part-1 then Click here..

In last article we have covered about Equity mutual funds, in this article we will began with the second type of mutual fund i.e Hybrid mutual fund. Before that will list down all the types of mutual funds.

Types of Mutual Funds

  1. Equity Mutual Funds
  2. Hybrid Mutual Funds
  3. Debt Mutual Funds
  4. Solution Oriented Funds
  5. Fund of Funds
  6. Index Funds / Exchange Trade Funds (ETF's)

Hybrid Mutual Funds

These types of fund basically invest in both Equity and Debt in different ratios. The sub categories of this fund is explained below
  • Arbitrage Funds: It is One of the safest categories of mutual funds, most suitable for people who want low risk in there investment. It has lower tax than pure Debt funds hence adds as a benefit as taxation of equity is applicable. The returns generally tend to be in the range of 6–7%, with. These type of mutual funds invest in both Stocks and Bonds but the focus is to take arbitrage position in stocks so that there is no impact of stock price change on the fund.

  • Aggressive Hybrid Funds: This fund is also called as Equity Oriented balanced funds. These fund invest 65-80% in stocks and 35-20% in bonds.

  • Conservative Hybrid Funds: This fund is also called as Debt oriented balanced funds. These funds invest 75–90% in debt and 25-10% in stocks, this fund also provide indexation benefit post 3 years of investment.

  • Equity Savings Funds: These types of funds invest in Equity and Equity Arbitrage positions and Debt. 65% of the fund exposure is maintained in Equity Funds, Good and safe option with LTCG (Long term capital Gain tax) benefit after 1 year.

  • Dynamic Asset Allocation or Balanced Advantage: In this fund allocation of fund between debt and socks can vary as per market conditions (As per fund Manager)

  • Multi-Asset Allocation: These mutual funds invest in at least 3 asset classes with at least 10% in each asset classes.

  • Capital Protection Funds: These ensure your capital is protected at all times.

Debt Mutual Funds

These types of mutual funds invest primarily in different bonds and debt instruments of different and varying maturities and risks. The sub categories of this fund is explained below.
  • Liquid Funds: These funds invest in bonds and money market instruments with Maturity no longer than 91 days. And this fund is also considered as very safe category of funds.

  • Ultra Short Duration Funds: These mutual funds select bonds/debt instruments for investment such that average maturity (remaining) period for portfolio is between 3 to 6 months. As these funds invest for shorter duration hence may provide less returns. But has less risk to interest rate changes.

  • Overnight Funds: These mutual funds invest in overnight instruments with maturity of as low as 1 day. These funds have very high safety ratings.

  • Credit risk funds: These mutual funds invest in bonds which are below highest grade ratings. Generally in bonds higher the ratings then lower the possibility of default. But lower rated bonds offer higher interest rates, hence yields high returns.

  • Low Duration Funds: These mutual funds select bonds/debt for investment such that average maturity (Remaining) period for portfolio is between 6 to 12 months (Macaulay duration).

  • Money Market Funds: These mutual funds invest in money market instruments with maturity no longer than 12 months.

  • Short Duration Funds: These mutual funds select bonds/debt for investment such that average maturity (remaining) period for portfolio is between 1 to 3 years (Macaulay duration).

  • Medium Duration Funds: These mutual funds select bonds/debt for investment such that average maturity (remaining) period for portfolio is between 3 to 4 years (Macaulay duration).

  • Medium to Long Duration Funds: These mutual funds select bonds/debt instruments for investment such that average maturity (Remaining) period for portfolio is between 4 to 7 years (Macaulay duration). Longer duration funds may provide higher returns but are more sensitive to interest rate changes.

  • Long Duration Fund: These mutual funds select bonds/debt instruments for investment such that average maturity (Remaining) period for portfolio is higher than 7 years (Macaulay duration). These funds are sensitive to interest change have may provide higher returns.

  • Gilt Funds: These mutual funds invest mostly in government bonds. Government bonds are considered the safest investment in India.

  • Fixed Maturity Plans: These funds have maturity of 3 years or more. However these are not open-ended funds.

  • Corporate Bond Funds: These mutual funds invest in highest rated bonds issued by corporates / companies.

  • Floater rate funds: These mutual funds invest in bonds which have floating interest rates. If interest rates goes up, then bond prices move down and reduces returns for the investors and vice a versa.

Solution Oriented Funds

These funds invests with a fixed definition in mind, like retirement funds, Children’s future oriented plans etc.
  • Retirement Funds: These mutual funds invest in stocks and bonds, as the theme may be. They have a lock in period of 5 years or till the retirement age(whichever is earlier).

  • Children’s Plan: These mutual funds invest in stocks and bonds, more having a balanced approach till the time the child matures. They have a lock in period of 5 years or till the majority age of the child (whichever is earlier).

Fund of Funds

  • These funds create a portfolio of other mutual funds. Yes! they invest in other mutual funds.
  • Investment in other funds is done to take exposure in international market or theme based funds, and reduce the direct investments into stocks.
  • This also help them take advantage of a positive situations in international growing economies like Brazil, Emerging markets, developed economies like US, China etc. or assets like Gold.

Index Funds / Exchange Traded Funds (ETFs):

These mutual funds creates a portfolio which invests directly in index like Nifty, Sensex. More than 95% portfolio replicates as Index, hence return of these funds is almost similar to returns of Index. They have a very low expense ratio. personally i believe that investing in these funds is less risky and has potential to give better returns.
   
One should know their needs and risk taking capabilities to invest in particular fund and achieve their goals. 
Location: Bengaluru, Karnataka, India

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