Understanding Mutual Funds and the many types of MFs in India

Professionals manage them and classify them as equity funds, debt funds, liquid funds, or hybrid funds based on their investing objectives
Understanding Mutual Funds and the many types of MFs in India

Mutual funds pool investor money to buy securities such as stocks and bonds. Mutual funds (MFs) are financial vehicles that aggregate money from various participants and use it to buy securities like bonds, equities, or a combination of the two. Mutual Funds are managed by professional fund managers. Mutual funds are broadly classified into five groups based on their underlying assets and investing goals.

Equity Mutual Funds

These funds primarily invest in companies' stocks or equities. They are further divided according to market capitalization (large-cap, mid-cap, small-cap).Mutual funds having market capitalizations greater than ₹10,000 crore are considered large-cap. These funds are frequently perceived by investors to be safer investments than others on the market. Mid-cap mutual funds focus their investments on mid-sized Indian companies. Mid-cap funds are noted for their dynamic performance, even if they offer slightly better returns than large-cap funds.Small-cap mutual funds invest in firms with market capitalizations of less than ₹5,000 crore.

Debt funds generally invest in fixed-income instruments such as government and corporate bonds. These funds seek to deliver steady income while minimizing risk. Debt funds come in a variety of forms, including ultra-short duration funds, short duration funds, medium duration funds, long duration funds, and gilt funds. Liquid funds are ideal for investors looking for short-term investment opportunities with high liquidity and low risk. Liquid funds provide quick and convenient access to funds. Hybrid or balanced funds invest in a combination of equity and debt securities. The allocation of equity and debt changes according to the fund's investment objective.

Some common hybrid mutual fund kinds.

Conservative Hybrid Funds: These funds often invest a bigger percentage of their assets in fixed-income products such as bonds and debt instruments. Aggressive Hybrid Funds: Aggressive hybrid funds, often known as balanced funds, devote more assets to stocks than conservative hybrid funds. Balanced Advantage Funds: These funds alter their allocation between equities and fixed-income securities based on market valuations and economic conditions. ELSS funds are equity mutual funds that have a specific tax-saving feature under Section 80C of the Indian Income Tax Act. These funds invest largely in equity and equity-related securities and have a three-year lock-in period.

ELSS funds

Diversified ELSS Funds: These funds invest in a variety of industries and market capitalizations. Large-cap ELSS Funds: These funds invest largely in large-cap company equities. Mid-cap ELSS Funds invest in the stocks of mid-sized firms with high growth potential. Small-cap ELSS Funds: This fund invests in stocks of small-cap companies with high growth potential. Sector-specific ELSS Funds: Certain ELSS funds concentrate on certain industries or themes, such as technology, healthcare, or infrastructure.