Mutual Fund Category

Exchange Traded Fund or ETF 

Categories of Mutual Funds?

Mutual Fund Category

According to the flexibility of investment and redemption, mutual funds are of two types.

Categories of Mutual Funds?
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  • Open-Ended Mutual Fund Scheme
  • Close-Ended Mutual Fund Scheme

Before the NFO of a mutual fund scheme, AMC has to decide whether it is going to open-ended mutual fund scheme or close-ended mutual fund scheme.

Open-Ended Mutual Fund Scheme

Open Ended Mutual Fund Scheme
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Open-Ended Mutual Fund scheme is a scheme wherein Investors can ever invest and withdraw money. Since money keeps coming in such a scheme, such a scheme does not have any fixed amount. The fund manager has to take a decision to invest according to the circumstances.

Close Ended Mutual Fund Scheme

Close Ended Mutual Fund Scheme
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Close-ended mutual fund Scheme You can invest only in NFO. Only after maturity can you withdraw your money. However, units of the close-ended mutual fund scheme can be bought and sold in the secondary market. Such transactions do not have any involvement with the mutual fund company nor do they have any effect on the deposit amount of that mutual fund scheme.

Open end benefit

Types Of Mutual Fund

There are several types of the best mutual fund based on your investment portfolio. SEBI has categorized the mutual funds hierarchically in 5 differentiation. In brief, we introduce the introduction we are giving below.

Equity Funds
Equity Funds
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Most of the equity mutual funds are invested in shares. The fund manager of such schemes has to spend at least 65% of the amount in the stock. He can keep the remaining money in bond or bank.

Now that the equity mutual fund is invested in shares. They also get their return according to the share market. That is, most likely to earn, but the risk is also higher in this.

Income from Equity fund does not appear to be long term capital gains tax while adding short-term capital gain to your income includes tax calculation.

Debt fund 
Debt fund 
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This type of mutual fund is invested primarily in bonds and corporate fixed deposits. It is a mandatory condition with a debt mutual fund that at least 65 percent of the money should be invested in bonds or bank deposits. For example government bonds, company bonds, corporate fixed deposits, and bank deposits and so on. The remaining amount can be invested in equity.

Now because debt funds are invested in fixed returns bonds, the risk is also comparatively lower. They should not expect too many benefits from you. Well, good debt funds can give you better returns than bank fixed deposits.

If you redeem your debt after 3 years, then you have to pay a long term capital gains tax on it. This long term capital gains tax rate will be 10 percent of indexation and with indexation 20 percent.

If you sell your debt mutual fund units 3 years ago, you will have to pay a short-term capital gains tax on income earned from it. This short-term capital gain will be added to your total earnings and then tax will be calculated according to your tax slab.

Balanced Mutual Fund

Balanced Mutual Fund
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Balanced Mutual Fund puts your money in both stock and bond. As you know, returns are more in stock but they are risky while bonds are safe but there is less returns in them. Therefore, by investing in both of these, it tries to provide good returns along with mutual fund protection.

However, these mutual funds offer returns less than the equity mutual fund, which are invested in pure shares and are less secure than the debt fund in net bonds.

At the best time of the market, these funds neither give a higher return like Equity Funds nor do they give you a very bad return, like Equity Funds, in the bad times of the market.

These funds adopt a balanced approach in investment and invest in mutual funds & stocks and bonds according to the condition of the market.

Note: The inclination of ‘balanced’ funds in India also looks more towards equity. Most of the portfolio of their portfolios are in at least 65 percent of the shares. They do this so that they can get maximum help in saving tax. Since such funds, which are invested more than 65% in shares, are considered equity mutual funds. Then, on their income, long term capital gains tax will not be applicable and they can get more tax benefits.

Examples of some Balanced Fund


Balanced Mutual Fund
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  • HDFC Prudence
  • HDFC Children’s Gift Fund – Investment
  • ICICI PRU balanced
  • DSPBR Balanced
  • Reliance Regular Savings – Balanced
  • There are other funding which can be called technically balanced or hybrid funds, but mutual fund companies do not associate the word ‘balanced’ with their names.
  • Tax Saving Mutual Fund (ELSS)

Tax Saving Mutual Funds are also called Equity linked savings scheme or ELSS. Since the government gives tax exemption on money invested in Equity linked savings scheme or ELSS, these are called Tax Saving Mutual Funds. This is one of the best ways to save tax. The money invested in ELSS gets locked for at least 3 years. That is, you can not withdraw money imposed in it before 3 years.

ELSS money is mainly invested in stocks, so they can often give you very good returns. However, like other equity mutual funds, these are also risky.

ELSS is tax saving under Section 80C. As in the section 80C of Income Tax, such investments have been kept in which the tax liability decreases by putting money into it. The amount of money you put into it reduces your taxable income. PPF investment, Home loan principal, NSC, tax saving FD, insurance, tuition fees, and EPF contribution are also eligible for tax exemption under Section 80C.

ELSS’s lock-in period is the lowest in all these tax saving investments. That is, if you are planning to save more tax by jamming your money for a short period of time, then Tax Saving Mutual Funds can be the best option.

Index funds

Index funds also invest money in shares like other equity funds. But this is different from the equity fund in the sense that it does not make money in the chosen shares. Instead, copy the structure of market indices and then make a copy. Sensex, Nifty, CNX-200, CNX 500 etc. are the market indices.

Index funds
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These indices include shares of certain companies. Every stock has a fixed weight-age in that index. An Index Fund, which follows the index, invests money in all the shares in it. In the shares, the money is also levied in the same proportion, in which the shares are given weight in the index.

For example, if an index fund is mimicking sensex. So, like the sensex, it will invest only in those 30 shares. It will also provide the same weight to every stock as the sensex. That is, even for such index funds, the reliance, Sensex, TCS, ITC etc. will be the highest weight share.

Due to the exact copy of the Sensex portfolio, this Index fund will return Return as well as the Sensex. However, you should not expect Return from the index fund exactly the same. Because copying can take a little time. This is called a tracking error in the language of investment. Since the fund manager of the mutual fund company is very little in this copycat fund. That is why the fund management charge in the index fund is also much lower.

You can buy index funds from mutual fund companies through mutual fund distributor.

Exchange Traded Fund or ETF 
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Exchange Traded Fund (ETF) is basically index funds. But these index funds can be bought and sold directly in the stock exchange. Like the shares, the cost of the exchange-traded fund also varies constantly during market hours. You can buy an exchange-traded fund from a stockbroker. To buy these, that is, you do not need a mutual fund distributor to invest in them.

Hedge Funds 

Hedge funds are slightly liberal funds. These are not tied under any regulation. And neither retail investor can put money in it. Only some select group of high net worth individuals invest in collective hedge funds. The hedge fund’s fund manager also places money in shares with aggressive tactics. The hedge fund’s fund manager can invest money anywhere in the world.

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Whatever the way he likes, bonds, bonds, gold or commodity anywhere. He can sell and take positions in derivatives as well. The fund manager of the hedge fund only works for profit. In this, the investor cannot easily withdraw his money. Investors are asked to keep the money for at least 1 year.

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