What are the Different Types of Mutual Fund Schemes?

Apr 7




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Mutual funds offer one of the clearest and flexible ways to create a diversified portfolio of investments. There are various mutual fund schemes geared to suit investors’ diverse risk appetites. A mutual fund scheme is made up of investments in equities, debt or a mix of both...


Mutual funds offer one of the clearest and flexible ways to create a diversified portfolio of investments. There are various mutual fund schemes geared to suit investors’ diverse risk appetites. A mutual fund scheme is made up of investments in equities,What are the Different Types of Mutual Fund Schemes? Articles debt or a mix of both.

 An investor should understand the different types of mutual fund schemes in India to make a correct investment decision.

 According to SEBI categorization of mutual funds, mutual funds can be classified as:

  1. Equity Schemes
  2. Debt Schemes
  3. Hybrid Schemes
  4. Solution Oriented Schemes – For Retirement and Children
  5. Other Schemes – Index Funds & ETFs and Fund of Funds

 1. Equity Schemes

They are popular mutual fund schemes that primarily invest in equities and equity related instruments. Though generally by nature categorised between high-risk to very high investments, these mutual fund schemes have potential to provide good long term risk adjusted return. They are ideal for investors with a high risk appetite and long investment horizon for wealth creation to fuel their financial goals. Normally an equity fund or diversified equity fund makes investments in various sectors to mitigate the risk.

Equity funds are further classified into several categories. Let’s understand three of them:

 a. Sector-specific funds:

These mutual funds  invest in distinct sectors like infrastructure, banking, technology, etc. Investors with a high-risk appetite prefer these funds.

 b. Value Funds:

Value funds are suitable for investors who want to invest in equity mutual funds but at the same time looking to minimize downside risks Value funds invest in stocks that are undervalued currently compared to historical averages and peers but are expected to perform better over the long term.

 c. Tax saving funds:

These funds invest atleast 80% in equity and equity-related instruments. offer tax benefits to investors. They are also called Equity Linked Saving Schemes (ELSS). They invest in equities and have a 3-year lock-in period. The investments in the scheme are eligible for tax deduction under sec 80C of the Income-Tax Act, 1961.

  1. Fixed income or debt mutual funds:

These funds invest a majority of their funds in debt - fixed income i.e. government securities, bonds, debentures, etc. They are ideal for investors looking for less volatile and short-term investments. However, they cannot escape credit risk. They can be categorized based on the tenure of securities and/or on the basis of the fund management strategies.

1. Liquid funds:

These funds invest in short-term debt instruments with a duration not exceeding 91 days, and provide a reasonable return to investors over a short period. Investors with a low-risk appetite looking to park their surplus funds for a short-term prefer these funds. They offer an alternative to putting money in a savings bank account.

2.  Gilt funds:

These funds invest minimum 80% in government securities across maturity. These funds are suitable for investors who are risk averse and do not want any credit risk associated with their investment.

  1. Hybrid funds:

These mutual fund schemes allocate their investments between equity and debt. The distribution may keep changing depending on market behaviour. Investors who prefer a combination of moderate returns with comparatively lower risk invest in these funds.

Investors looking to invest in mutual fund schemes should use the following pointers while comparing the performance of various mutual fund schemes

  • Compare returns of one mutual fund scheme with the returns of another mutual fund within the same time frame. Do not compare the five-year return of one fund with the three-year return of another fund.
  • Compare fund returns of large-cap funds with the given index like BSE Large-cap and not with BSE Mid-cap index.
  • While comparing funds, select mutual fund schemes that have been in the market for a long time. This ensures that the performance of mutual fund has managed to weather the market behaviour for quite some time.


Disclaimer: The views expressed here in this Article / Video are for general information and reading purpose only and do not constitute any guidelines and recommendations on any course of action to be followed by the reader. Quantum AMC / Quantum Mutual Fund is not guaranteeing / offering / communicating any indicative yield on investments made in the scheme(s). The views are not meant to serve as a professional guide / investment advice / intended to be an offer or solicitation for the purchase or sale of any financial product or instrument or mutual fund units for the reader. The Article / Video has been prepared on the basis of publicly available information, internally developed data and other sources believed to be reliable. Whilst no action has been solicited based upon the information provided herein, due care has been taken to ensure that the facts are accurate and views given are fair and reasonable as on date. Readers of the Article / Video should rely on information/data arising out of their own investigations and advised to seek independent professional advice and arrive at an informed decision before making any investments. None of the Quantum Advisors, Quantum AMC, Quantum Trustee or Quantum Mutual Fund, their Affiliates or Representative shall be liable for any direct, indirect, special, incidental, consequential, punitive or exemplary losses or damages including lost profits arising in any way on account of any action taken basis the data / information / views provided in the Article / video.

Mutual Fund investments are subject to market risks, read all scheme related documents carefully.