Types of Mutual funds

WHAT ARE VARIOUS TYPES OF MUTUAL FUNDS

A common man is so much confused about the various kinds of Mutual Funds that he is afraid of investing in these funds as he can not differentiate between various types of Mutual Funds with fancy names. Mutual Funds can be classified into various categories under the following heads:-

(A) ACCORDING TO TYPE OF INVESTMENTS :- While launching a new scheme, every Mutual Fund is supposed to declare in the prospectus the kind of instruments in which it will make investments of the funds collected under that scheme. Thus, the various kinds of Mutual Fund schemes as categoried according to the type of investments are as follows :-

(a) EQUITY FUNDS / SCHEMES

(b) DEBT FUNDS / SCHEMES (also called Income Funds)

(c ) DIVERSIFIED FUNDS / SCHEMES (Also called Balanced Funds)

(d) GILT FUNDS / SCHEMES

(e) MONEY MARKET FUNDS / SCHEMES

(f) SECTOR SPECIFIC FUNDS

(g) INDEX FUNDS

B) ACCORDING TO THE TIME OF CLOSURE OF THE SCHEME :- While launching a new schemes, Mutual Funds also declare whether this will be an open ended scheme (i.e. there is no specific date when the scheme will be closed) or there is a closing date when finally the scheme will be wind up. Thus, according to the time of closure schemes are classified as follows :-

(a) OPEN ENDED SCHEMES

(b) CLOSE ENDED SCHEMES

C) ACCORDING TO TAX INCENTIVE SCHEMES :- Mutual Funds are also allowed to float some tax saving schemes. Therefore, sometimes the schemes are classified according to this also:-

(a) TAX SAVING FUNDS

(b) NOT TAX SAVING FUNDS / OTHER FUNDS

(D) ACCORDING TO THE TIME OF PAYOUT :- Sometimes Mutual Fund schemes are classified according to the periodicity of the pay outs (i.e. dividend etc.). The categories are as follows :-

(a) Dividend Paying Schemes

(b) Reinvestment Schemes

The mutual fund schemes come with various combinations of the above categories. Therefore, we can have an Equity Fund which is open ended and is dividend paying plan. Before you invest, you must find out what kind of the scheme you are being asked to invest. You should choose a scheme as per your risk capacity and the regularity at which you wish to have the dividends from such schemes.