Mutual Funds

Technically speaking, a mutual fund is an investment vehicle which pools investors' money and invests the same for and on behalf of investors into stocks, bonds, money market instruments and other assets as per the mandate of the fund. The money is received by the AMC with a promise that it will be invested in a particular manner by professional managers (commonly known as fund managers). The fund managers are expected to honour this promise. The SEBI and the Board of Trustees ensure that this actually happens.

How does a Mutual Fund work

1. Equity funds

These funds invest in shares. These funds may invest money in growth stocks, momentum stocks, value stocks, income stocks, large cap stocks, mid cap stocks, small cap stocks etc depending on the investment objective of the fund.

So, we have sub categories like

  • Large Cap Fund
  • Large & Mid Cap Funds
  • Mid Cap funds
  • Small Cap Fund
  • Multicap Fund
  • Equity Linked Savings schemes (ELSS)
  • Value Fund
  • Focused Fund
  • ETF
  • Dividend Yield Fund
  • Arbitrage Fund
  • Sectoral funds which invest in stocks of a particular sector like Pharma Fund, Banking Fund
  • Thematic Funds like Infrastructure Funds, Energy Funds

2.Debt funds

These funds invest money in bonds and money market instruments. These funds may invest into long-term and/or short-term maturity bonds.

  • Short Duration Funds
  • Medium Duration Funds
  • Medium to Long Duration Funds
  • Long Duration Funds
  • Dynamic Bond Fund
  • Corporate Bond Fund
  • Ultra Short Duration Funds
  • Low Duration Funds
  • Money Market Funds
  • Liquid Funds
  • Credit Risk Funds
  • Banking & PSU Funds
  • Floater Funds
  • Gilt Funds
  • Gilt Funds with 10 year constant duration

3.Hybrid funds

These funds invest in a mix of both equity and debt.

  • Aggressive Hybrid funds, in order to retain their equity status for tax purposes, generally invest at least 65% of their assets in equities and roughly 35% in debt instruments, failing which they will be classified as debt oriented schemes and be taxed accordingly.
  • Balanced Advantage
  • Equity Savings Fund
  • Conservative Hybrid Fundfall within the category of hybrid funds. MIPs invest up to 25% into equities and the balance into debt.
4.Real asset funds

These funds invest in physical assets such as gold, platinum, silver, oil, commodities and real estate. Gold Exchange Traded Funds (ETFs) and Real Estate Investment Trusts (REITs) fall within the category of real asset funds.