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What are different types of mutual funds

There are essentially two kinds of mutual funds.

  • Open Ended Schemes: Investors can buy units of open ended schemes at any time. Investors can also sell units of open ended schemes at any time, though some schemes (e.g. equity linked savings schemes) may have a lock in period during which the investor cannot sell the units.

  • Close Ended Schemes: Close ended schemes are open for subscription only for a limited period of time, during the offer period. These schemes have fixed tenure and the investors can sell or redeem only after the maturity of the scheme. Upon maturity, depending on the scheme, the units get automatically redeemed or in some cases, the investors can switch to a different scheme.

Classification of mutual funds is also done on the basis of nature of investment.

  • Equity oriented schemes, which primarily invest in equity shares of different companies

  • Debt oriented schemes which primarily invest in fixed income securities of different companies, banks and the Government

  • Fund of fund schemes, which invest in other mutual fund schemes, including ETFs, depending on the investment objective and strategy

  • Exchange traded funds, which invest in a basket of stocks that reflects the composition of an Index, like the Sensex or the Nifty. ETFs are listed and traded on exchanges like stocks

  • Further categorization of these different mutual fund classes is done on the basis of nature of the specific underlying securities. For example within equity oriented schemes, we have large cap funds, small and midcap funds, multicap or flexicap funds, equity linked savings schemes (tax saver funds), balanced funds (hybrid equity oriented funds).Within debt oriented funds, we have gilt funds, income funds, short term funds, credit opportunities fund, liquid funds and monthly income plans (hybrid debt oriented funds).


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