Types of Mutual Fund schemes

Mutual Fund schemes available are specific to investor needs such as financial position, risk tolerance and return expectations etc.

These can be classified by:

Structure

  1. Open-end Funds

Open-ended funds are MFs which can issue and redeem their shares at any time.

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Investors can conveniently buy and sell units at the existing NAV of the scheme.

There is no fixed maturity of these funds.

Key feature: liquidity of funds.

  1. Close-ended Funds

Close-ended schemes are MFs with a fixed no. of shares (or units) which are issued through a New Fund Offer (NFO).

The fund is open for subscription only during this specified period.

Stock-Market

The fund is then structured, listed and traded on stock exchange. Investors can buy or sell the units on this stock exchange.

Some close-ended funds also give an option of selling back the units to the MF through periodic repurchase at NAV related prices.

They have stipulated maturity period (usually 3 to 15 years).

Key features: fixed no. of units, limited availability.

 

  1. Interval Schemes

Interval schemes combine features of both open-ended and close-ended schemes.

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The units may be traded on the stock exchange or may be open for sale or redemption during pre-determined intervals at NAV-related prices.

Key features: features of both open-ended and close-ended schemes.

Investment Objective

  1. Growth or Equity-Oriented Schemes

The aim of growth funds is to provide capital appreciation over the medium to long-term.

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These schemes usually invest majority of their portfolio in equities and so have comparatively high risks.

Growth schemes are good for investors having a long-term outlook seeking appreciation over a period of time.

Key features: capital appreciation over the medium to long-term.

It can be further classified into following depending upon objective:

  • Large-Cap Funds: invest in companies from different sectors largely in BSE 100 and BSE 200 Stocks.
  • Mid-Cap Funds: invest in companies from different sectors largely in BSE Mid Cap Stocks.
  • Sector Specific Funds: invest in a particular sector eg. IT.
  • Thematic: invest in various sectors but restricted to specific theme e.g., services, exports, consumerism, infrastructure, etc.
  • Diversified Equity Funds: all non-theme and non-sector funds.
  • Tax Savings Funds (ELSS): investments in these funds are exempt from income tax at the time of investment.
  1. Income or Debt oriented Schemes

The aim of Income Funds is to provide regular and steady income to investors.

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These funds generally invest in fixed income securities such as bonds, corporate debentures and Government securities and money-market instruments. So, the opportunities of capital appreciation get restricted.

These funds do not participate into markets. Hence, there is no market risk or volatility and are less risky compared to equity schemes.

Key features: regular and steady income to investors.

  1. Balanced Funds

The aim of Balanced Funds is to provide both growth and regular income.

balance

These schemes invest both in equities and fixed income instruments in the proportion indicated in their offer documents.

Balanced funds are ideal for investors looking for income as well as moderate growth.

Key features: capital appreciation and regular income to investors.

  1. Money Market Funds or Liquid Funds

The aim of Money Market Funds is to provide easy liquidity, preservation of capital and moderate income.

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These funds exclusively invest in safer short-term instruments such as Treasury Bills, Certificates of Deposits, Commercial Paper and inter-bank call money, Government Securities, etc.

Fluctuations in returns of these schemes are much less than other funds.

These are appropriate for investors who wish to invest for short periods.

Key features: easy liquidity, preservation of capital and moderate income.

 

  1. Gilt Funds

These funds invest exclusively in Government Securities.

  1. Fund of Funds Schemes

Fund of Funds invests in other MF schemes.

Such schemes can help investors reduce their chances of selecting a wrong MF.

  1. Gold Exchange Traded Funds

It is an open-ended Exchange Traded Fund which provides return that is in line with the return on investment in physical gold.

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  1. Floating Rate Funds

These are open-ended income schemes which invest equally in floating rate debt instruments and fixed rate debt instruments.

Other Schemes

  1. Tax Saving Schemes or Equity linked Savings Schemes (ELSS)

Investments in these funds are exempt from income tax at the time of investment upto Rs. 1,50,000 per annum under Section 80C.

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ELSS have a lock in period of 3 years.

  1. Index Schemes

Index schemes replicate the portfolio of a particular index such as the BSE Sensitive index, S&P NSE 50 index (Nifty), etc.

  1. Sectoral Schemes

Sectoral Funds are those which invest exclusively in a specified sector(s) such as FMCG, IT, Pharmaceuticals, Infrastructure, petroleum stocks, etc.

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While these funds may give higher returns, they are more risky compared to diversified funds as their portfolio is restricted to the specific sectors.

  1. Load or No-Load Funds

A load fund is one that charges a percentage of NAV for exit ie.

A charge is payable each time one sells units in the fund.

This charge is used by the MF for marketing and distribution expenses.

  1. Dividend Payout Schemes

As and when MF companies make profits, part of the money is distributed to the investors by way of dividends.

Hand-with-marker-writing-Dividends

  1. Dividend Reinvestment Schemes

This is similar to the previous scheme.

However, the dividend declared is re-invested in the same fund on the same day’s NAV.

 For more information please visit http://www.fortunawealth.in

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