How many types of mutual funds are there in India?

Mutual funds are basically an indirect way of investing in the stock market but there are different categories of these mutual funds that cater to the needs of different, different people like some people especially people in their 20s are okay taking more risks to get higher returns.

So there's a different category of mutual funds for that some people want moderate risks and moderate returns and some people especially the older ones don't want to take much risk and want returns that are better than the bank FDs so low risk and low returns.

So there are different categories of mutual funds for that some want to invest for the long term and some want to invest for the short term so there's an option for overnight funds as well so I'll tell you about different categories of mutual funds. 

Now there are basically three categories of mutual funds 

• Equity funds 
• Debt funds 
• Hybrid funds 

Equity funds

Equity funds are funds that invest majorly in equity stocks or shares of companies these are considered risky funds but they also have the potential to provide higher returns over a longer period of time 

Debt funds 

Debt funds are funds that invest in debt instruments example companies debentures government bonds and other fixed-income assets, they are considered relatively safer and stable as compared to the equity funds.

Hybrid funds 

Hybrid funds are funds that invest in a mix of asset classes like equity and debt in some cases the proportion of the equity is higher than the debt while in others it is the other way round risk and returns are balanced out this way.

Now each of these has subcategories we'll talk about each of these in detail 

Inequity funds are different categories first we talk about the large-cap 

Large-cap funds 

A large portion of the investment is done in companies with large market capitalization these companies are strong reputable and trustworthy 

Mid-cap funds

Mid cap funds a large portion of the investment is done in companies with medium market capitalization stocks of mid-cap companies are riskier than the large-cap but they are not as risky investment instruments as the small-cap. 

Small-cap funds 

Small-cap funds a large portion of the investment is done in companies with small market capitalization stocks of small-cap companies are highly risky and volatile investment instruments. 

Multi-cap funds 

Multi-cap equity funds or diversified equity funds invest in stocks of companies across the stock market regardless of the size or the sector these funds provide the benefit of diversification by investing in companies spread across the sectors and market capitalization.

They are generally meant for investors who seek exposure across the market and do not want to be restricted to any particular sector. 

ELSS fund 

Equity link savings scheme is a dedicated mutual fund scheme that allows investors to save tax under the section act of the income tax act 1961. 

It has a lock-in period of three years and provides an opportunity for long-term capital appreciation an ELSS fund invests in a diversified portfolio predominantly consisting of equity and equity-related instruments that carry high risk and have the potential to deliver high returns over a long period 

Sectoral Funds 

Sector funds invest in stocks of companies that operate in a particular industry or sector of the economy like banking public sector undertaking infra rural pharma etc.

These funds are riskier than the well-diversified ones and are more volatile due to holdings in one particular sector

Hybrid funds 

Hybrid funds are those investment instruments where the asset management company invests the money in both debt and equity these are pretty diversified the higher the proportion of investment into debt the safer it is.

Debt funds

Debt funds based on the maturity period debt funds can be classified into the following types

Number 1. Liquid fund liquid funds invest in money market instruments having a maturity of a maximum of 91 days, liquid funds are a good alternative for short term investments money.

 
Number 2. Market funds invest in money market instruments with a maximum maturity of one year these funds are good for investors seeking low-risk debt securities for the short term 

Number 3. The dynamic bond fund invests in debt instruments of varying maturities based on the interest rate regime these funds are good for investors with moderate risk tolerance and an investment horizon of four years and above 

Corporate bond funds 

corporate bond funds invest a minimum of eighty per cent of their total assets in corporate bonds having higher ratings these funds are good for investors with lower risk tolerance and seeking to invest in high-quality corporate bonds

Guild funds 

invest a minimum of 80 per cent of its investable corpus in government securities across varying maturities these funds do not carry any credit risk however the interest rate risk is high

Credit risk 

funds invest its investable corpus in corporate bonds having ratings below the higher-quality corporate bonds therefore these funds carry an amount of credit risk and can offer slightly better returns than the high-quality bonds 

Overnight funds

Overnight funds invest in debt securities having a maturity of one day these funds are considered to be the lowest among the debt funds in the risk table since both the credit risk and the interest rate risk are low all this helps you choose the fund that is right for you. 

I want to reiterate that we don't recommend any particular fund or stock and all of this is just for educational purposes. 

Mutual fund investments are subject to market risks read all scheme related documents carefully

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