Mutual Funds can be classified on the basis of the flexibility of making transaction, portfolio rebalancing done by fund manager, investor goal, and asset class of portfolio.
Types of Mutual Funds based on Flexibility in Buying and Selling
On one hand, there are Open Ended Mutual Funds which you can purchase any time and sell any time. On the other hand, there are Closed Ended Mutual Funds which have a lock-in period until maturity. Open Ended Funds allows you to do SIPs leading to cost averaging benefits. On the other hand, Closed Ended Funds forces you to invest Lumpsum amounts and stick with the investment, no matter how the market moves. Almost all ELSS funds fall under Closed Ended category. And there are Interval type funds too where Purchase and Redemption can happen only in certain fixed periods.
Type of Mutual Funds based on Portfolio Rebalancing
Some Funds are Actively Managed while the others are Passively Managed. For an Actively Managed Fund, the Fund Manager adjusts the portfolio allocation based on the Investment Strategy shared in the Scheme Document of the Fund. On the other hand, Fund Manager of Passive Fund adjusts his/her portfolio to mimic the Benchmark’s (Nifty or Sensex) allocation.
Types of Mutual Funds based on Investment Goal or Objective
Different people have different reasons for investing in Mutual Funds. Say, some invest towards Retirement for which they invest in Growth Funds (major allocation will be in Equity), while others may have already reached Retirement and looking for Steady Income for which they invest in Income Funds (major allocation will be in Fixed Income Securities like Corporate Bonds, Government Securities, Debentures), while others might looking for liquidity for short term goals for which they can invest in Liquid Funds (major allocation will be in Money Market Instruments like Treasury Bills). And there can be miscellaneous goals like Tax Saving for which ELSS Funds (Equity + Fixed Income) are employed.
Types of Mutual Funds based on Investment Portfolio
Categorization here, first will be on the basis of asset class viz., Equity Fund, Debt Fund, Money Market Fund or Gold Fund. Second level of categorization comes from Investment Strategy or Style i.e., Income Fund, Dynamic Fund, Infrastructure Fund, Large/Mid/Small Cap Fund, Value Fund, etc. There are also other miscellaneous funds such as Hybrid Funds (mix of equity and debt instruments), Sectoral Funds (contains stocks of particular sector like Healthcare, Technology or Banking), or International Funds (invest in securities outside home country).
The return on Liquid Funds can be around 4% since it’s having the lowest risk. While the high risky ones are the Growth Funds with complete allocation in Equity which can bring around 14% returns (The figures I mentioned are based on past performance of Markets). And there are Aggressive Growth Funds as well which are much more riskier but can bring better returns over a longer horizon.
You can find more details on returns of individual funds over 1 year, 3 year and 5 year periods on Mutual Fund Apps. If you already have an brokerage account with Zerodha, it has a platform called Coin which allows you to browse through the large number of Mutual Funds. These apps are so generous that they don’t even charge any commission for Investing in Mutual Funds through them, albeit they charge a nominal annual maintenance fee.
Also read How a Mutual Fund Works, Browse Mutual Funds
