Classification of Mutual Funds

There are three different types of classification of mutual funds.

(1) Functional

(2) Portfolio and

(3) Ownership. Each classification is mutually exclusive.

1. Functional Classification: Funds are divided into:

(i) Open ended funds

(ii) Close ended funds and

Open ended funds

In an open ended scheme, the investor can make entry and exit at any time. Also, the capital of the fund is unlimited and the redemption period is indefinite. Open-end mutual funds must be willing to buy back their shares from their investors at the end of every business day at the net asset value (NAV) computed Read More ...

Close ended funds

In a close ended scheme, the investor can buy into the scheme during Initial Public offering or from the stock market after the units have been listed. The scheme has a limited life at the end of which the corpus is liquidated. The investor can make his exit from the scheme by selling in the stock market, or at the expiry Read More ...

Interval funds are very similar to close-ended funds, but differ on the following points:

• They are not required to be listed on the stock exchanges, as they have an in-built redemption window.

• They can make the fresh issue of units during the specified interval period, at the prevailing NAV based prices.

• Maturity period is not defined.

(2) Portfolio Classification: Funds are classified into

1. Equity Funds,
2. Debt Funds and
3. Special Funds.

Equity funds invest primarily in stocks. A share of stock represents a unit of ownership in a company. If a company is successful, shareholders can profit in two ways:

• the stock may increase in value, or
• the company can pass its profits to shareholders in the form of dividends.

If a company fails, a shareholder can lose the entire value al his or her shares: however, a shareholder is not liable for the debts of the company.

Equity Funds are of the following types viz.

1. Growth Funds: They seek to provide long-term capital appreciation to the investor and are best to long-term investors. A growth Read More ...

2. Aggressive Funds: They look for supernormal returns for which investment is made in start-ups, IPOs, and speculative shares. A mutual fund that attempts to achieve the highest capital gains. They Read More ...

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3. Income Funds: They seek to maximize the present income of investors by investing in safe stocks paying high cash dividends and in high yield money market instruments.  type of fund that seeks to Read More .....

4. Balanced Funds: They are a mix of growth and income funds. They buy shares for growth and bonds for income and best for investors seeking to strike golden mean. A balanced fund is a fund that combines a stock component, Read More .....

Debt Funds are of two types viz.

1. Bond Funds: A bond fund or debt fund is a fund that invests in bonds or other debt securities. They invest in fixed income securities e.g. government bonds, corporate debentures, convertible debentures, money Read More .....

2. Gilt Funds: Gilt Funds are mutual funds that invest only in government securities. They are preferred by risk-averse and conservative investors Read More .....

Types of Special Funds:-

1. Index Funds: Every stock market has a stock index which measures the upward and downward sentiment of the stock market. Index Funds are low-cost funds and influence the stock Read More .....

2. International Funds: A mutual fund located in India to raise money in India for investing globally. A mutual fund that can invest Read More .....

3. Offshore Funds: A mutual fund located in India to raise money globally for investing in India. An offshore fund is a term which Read More .....

4. Sector Funds: They invest their entire fund in a particular industry e.g. utility fund for utility industry like power, gas, public works. A stock mutual, exchange-traded or closed-end Read More .....

5. Money Market Funds: These are predominantly debt-oriented schemes, whose main objective is the preservation of capital, easy liquidity, and moderate income. To achieve this objective, liquid funds Read More ...

6. Fund of Funds: Fund of Funds (FoF) as the name suggests are schemes which invest in other mutual fund schemes. The concept is popular in markets where there is the number of mutual Read More .....

7. Capital Protection Oriented Fund: The term 'capital protection oriented scheme' means a mutual fund scheme which is designated as such and which endeavors to protect the capital invested Read More .....

8. Gold Funds: The objective of these funds is to track the performance of Gold. The units represent the value of gold or gold related instruments held in the scheme. Gold Funds which are Read More .....

(3) Ownership Classification: Funds are classified into Public Sector Mutual Funds, Private Sector Mutual Funds, and Foreign Mutual Funds. Public Sector Mutual Funds are sponsored by a company of the public sector. Private Sector Mutual Fund is sponsored by a company of the private sector. Foreign Mutual Funds are sponsored by companies for raising funds in India, operate from India and invest in India.