Different types of mutual funds
There are different types of mutual funds to cater to different needs of different types of people. Mostly, there are three types.
1.Equity or Growth Funds
These invest largely in equities, for example, shares of companies
Its primary objective is wealth creation or capital appreciation.
These are suitable for long-term investment and can provide high returns.
Examples of this are
“Large Cap” funds, which invest largely in large companies;
“Mid-cap” funds that invest in mid-cap companies.
“Small cap” funds that invest in small companies,
“Multi-cap” funds that can invest in large, mid-cap and small-cap companies.
“Sector” funds that invest in companies related to a particular type of business. For example, technology funds invest only in technology companies.
“Thematic” funds invest in a common theme. For example, infrastructure funds that invest in companies that benefit from growth in the infrastructure sector.
Tax Savings Funds
2.Income or Pandu or Fixed Income Funds
These invest in fixed income securities such as government securities or bonds, commercial papers or debentures, certificates of bank deposits and money market instruments such as treasury bills and commercial papers.
These are relatively safe investments and suitable for income generation.
For example, liquid, short term, floating rate, corporate debt, dynamic bond, gilt funds etc.
These offer better return potential and income generation as they invest in both equity and fixed income funds.
Examples of these are Aggressive Balanced Funds, Conservative Balanced Funds, Pension Plans, Child Plans and Monthly Income Plans.