Mutual fund schemes define how a particular fund operates. In mutual fund schemes the investor can find details of the fund – its objective, goal, risk factor, product to invest in etc. The mutual fund schemes are part of the offer document or prospectus.

Types of mutual fund schemes in India

Since there are various type of mutual fund schemes, they can be classified under different groups. Some of the major mutual fund schemes group are as below, They cover 14  types of mutual fund schemes.

Structure based

Open ended scheme

it is a type of mutual fund schemes where the fund is available for purchase and sale by investors at any point of time. In other word entry and exit to such mutual fund schemes is possible at any point of time of the year. The applicable price for transaction is market price which is known as Net Asset Value (NAV) per unit of the fund. There is no fixed maturity of the scheme. It is perennial in nature. The purchase and sale is possible through the office of Asset Management Company (AMC), bank branch or online platform. An important feature of this scheme is liquidity. The NAV is declared on daily basis.

Close-ended scheme

In this kind of mutual fund schemes subscription or invest is possible only at a defined period, which is generally at the time of new fund offer (NFO). The investors have to remain invested till the maturity period of the scheme which ranges from 5 to 7 years. However, such schemes are listed in stock exchange to enable the investor to exist the fund if he or she wishes before maturity date. The NAV of such scheme is declared on weekly basis.

Interval scheme

These mutual fund schemes allows purchase or sale of unit during a specified period between initial offer to maturity date. As per regulations, the transaction should be over minimum of 2 days and there should be gap of atleast 15 days between two transaction date. Like the close ended scheme, interval scheme also needs to be listed in stock exchange.

Management style

Active fund

It’s a fund where the corpus is managed by a Fund Manager. On daily basis the fund manager monitors the invested corpus. If required the Fund Manager will sale certain investment and redeploy the fund in some other investment to maintain the objective of the scheme. The objective could be profit making at a pre-set rate, capital preservation, dividend earning, risk reduction etc.

The active funds are expected to give better return. The risk level is dependent upon the strategy adopted by the fund manager, who also selects the shares in which the fund is to be invested. The fund manager is supported by a team and there is a supervisory committee.

Passive fund

It is a fund where the corpus is invested in those securities which are part of an index like SENSEX, NIFTY50 etc. Or it is linked to a benchmark like S&P500, NIFTY IT, NIFTY Bank etc.. These schemes replicate the portfolio of the Index or the benchmark. Index fund, Exchange Traded Funds (ETF) are example of passive fund. The fund manager has a passive role. He or she need not monitor the portfolio closely as it is done with active fund.

Investment objectives

Capital appreciation

This scheme is also known as growth fund. The primary objective of this kind of scheme is to make the invested amount grow. This is possible by reinvesting the earning of the fund.

AMC reinvest the interest, profit earned and dividend received by the fund back into the fund so that corpus value go up and give even bigger return. These schemes invest primarily in equity and stay invested for long duration.

Such schemes carry high risk with high return. Some of the scheme give dividend option wherein the investor can opt for taking out the dividend received from the companies.

Capital preservation

This scheme aims to preserve the capital by avoiding risky investment, highly volatile market and by becoming conservative in its investment philosophy. Normally return from such scheme is low.

Regular income

The objective of this kind of mutual fund schemes is to provide regular and steady income to investors. These schemes invest in Corporate Deposit, Government securities, debentures etc. The returns or income thus generated by these financial products are distributed to investors along with capital gain, if any. However, there is no guaranteed returns. Investment in these schemes is less risky. Its value is not affected by fluctuation in equity market but economic developments. The capital appreciation is limited. NAV changes with the change in interest rate.

Liquidity

The objective of such mutual fund schemes is to protect the principal, easy exit whenever needed with moderate return. The fund is invested mostly in money market instrument like commercial paper, treasury bill, overnight funds, certificate of deposits etc. Such investment are low risk. These funds are appropriate for corporate and individual investors as a means to park their surplus funds for short periods. Also known as money market fund or guilt fund.

Tax saving

There are schemes which qualify for tax exemption under different sections of IT Act. Equity Linked Saving scheme (ELSS) is one such scheme.

Investment portfolio

Based on asset class

Equity scheme – These schemes invest its corpus only in different shares of companies.

Debt scheme – These schemes invest its corpus only in debt instruments.

Hybrid scheme – These schemes invest in different proportion to equity and debt instruments. Like 40:60, 50:50, 65:35. The performance of these schemes is less volatile.

Based on strategy and style

Large cap/mid-cap/small-cap equity fund

These kinds of mutual fund schemes invest exclusively in shares of large cap or Mid cap or in small cap. Cap is short form of capitalisation. A large cap company is whose shares trading volume is more than ₹10,000 crore; a mid-cap is a company whose  share trading volume is between ₹2000 crore to ₹10,000 crore and small cap is a company whose share trading volume is less than ₹2000 crore. Depending upon the volume of trading or market capitalisation, the return and risk factors varies for each of these categories.

Infrastructure fund

These schemes exclusively invest companies who are engaged in infrastructure creation or maintaining business. The return on such scheme is low. However, over very long period it gives good return.

Industry specific fund

These schemes invest in companies which are specific to any one industry category like banking, pharmaceutical, Information Technology etc. The return of such scheme is good, but very sensitive to performance of the industry.