Yesterday, we have read about framework of mutual funds and
how to start mutual fund investments.
Mentotax will guide us to various types of mutual funds
available for investment
Mutual Funds are classified based on structure, Asset Class,
Market Capitalisation, Investment Objectives, Solution Oriented funds.
# Based on Structure:
Open Ended Funds:
Open ended funds are open for investors to enter or exit at any
time. Open funds are more liquid and easily available for purchase/redeem.
Close Ended Funds:
Close ended funds have fixed maturity. Funds can be
purchased only through NFO(New Fund Offer). And few funds trade post NFO in
stock exchange. Close ended fund are less liquid compared with open ended funds
Interval Funds:
Interval Funds have
both the characteristics of Open ended and close ended funds. Interval funds
have fixed maturity but fund will be open for investors to buy/Sell during
transaction period. Transaction Period is when the fund scheme become open
ended, will be available for repurchase and redemption.
# Based on Asset Class:
Equity Funds:
Equity funds of the mutual fund scheme invests in the equity
instruments issued by the company. These funds have more than 65% of exposure
in the equity instruments. Equity funds target long term appreciation from the
gains in the value of securities held. Equity funds are further classified into
various categories based on Market Capitalization, Sector Funds, ELSS.
Debt Fund:
Debt Funds of the mutual fund scheme invests in the debt instruments
issued by the governments, Companies. These funds invest more than 65% in the
debt Instruments. Debt funds represents Income oriented asset, and generate regular
income in the form of interest. Debt funds are further classified based on
tenure, Issuer, Investment Strategy.
Hybrid Funds:
Hybrid funds of the scheme invest in both the equity and
debt instruments based on the objective of the fund. Risk and return of the
funds depends on the allocation of funds. Risk and return is higher if equity
exposure is higher. Hybrid Funds are classified further based on Conservative,
balanced, Aggressive funds.
# Based on Investment Objective:
Growth Funds:
Growth fund scheme invest the money in the equity instruments
and it provides capital appreciation for the investors in the long term.
Income Funds:
Income fund scheme invest the money in debt instruments of
the company, Government and it provided regular income and capital protection
for the investors.
Liquid Funds:
Liquid fund scheme invest the money in the T-Bills,
Commercial Papers issued by the companies and It provides reasonable returns
with more liquidity.
# Based on Solutions Oriented Schemes:
Retirement Fund:
Retirement fund is an open ended solution oriented fund. It
has 5 Year Lock in period for the investment. It provides capital appreciation
and regular income.
Children Fund:
Children fund is an open ended Solution oriented fund. It invest
in wide spectrum of securities. It has 5 year lock in or until child attains
majority whichever is earlier. It provides capital appreciation on investments.
There are lot more classification of funds. We will learn as
we proceed further.
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