Different types of investments are available to investors. Mutual funds offer good investment opportunities but they are subject to certain risk. Investors should compare all the risk factors and expected profit ratios to take informed decisions.
The investors can also take suggestions and guidance from experts and investment consultants.
What is Mutual Fund?
A mutual fund is a pool of money managed by a professional Fund Manager. It is a trust that collects money from a number of investors who share a common investment objective and invests the same in equities, bonds, money market instruments and/or other Securities.
What are the different types of mutual fund schemes and the essential characteristics/ conditions?
Equity Schemes
| S. No. | Category | Scheme characteristics/minimum conditions |
|---|---|---|
| 1 | Multi-Cap Fund | Invest across large-cap, mid-cap, small-cap stocks Min. equity component – 65% |
| 2 | Large Cap Fund | Predominantly invest in large-cap stocks Min. equity component – 80% |
| 3 | Large and Mid-Cap Fund | Invest in both large-cap and mid-cap stocks Min. equity component (large-cap stocks) – 35% Min. equity component (mid-cap stocks) – 35% |
| 4 | Mid Cap Fund | Predominantly invest in mid-cap stocks Min. equity component (mid-cap stocks) – 65% |
| 5 | Small Cap Fund | Predominantly invest in small-cap stocks Min. equity component (small-cap stocks) – 65% |
| 6 | Dividend Yield Fund | Predominantly invest in dividend-yielding stocks Min. equity component – 65% |
| 7 | Value Fund | The scheme should follow a value investment strategy Min. equity component – 65% |
| 8 | Contra Fund | The scheme should follow a contrarian investment strategy. Min. equity component – 65% |
| 9 | Focussed Fund | Maximum 30 stocks Min. equity component – 65%AMC to mention where the scheme intends to focus, viz., Multi-cap, large-cap, mid-cap, small-cap) |
| 10 | Sectoral/Thematic Fund | AMC to clearly mention the sector/theme that the scheme shall focus on Min. equity component (for stocks belonging to that sector/theme) – 80% |
| 11 | Equity Linked Savings Schemes (ELSS) | The statutory lock-in period of 3 years Min. equity component – 80% (per Equity Linked Saving Scheme, 2005, as notified by the Ministry of Finance) |
Note: Mutual Funds will be permitted to offer either Value fund or Contra fund
Debt Schemes
| S. No. | Category | Scheme characteristics/minimum conditions |
|---|---|---|
| 1 | Overnight Fund | Invest in overnight securities – Maturity of 1 day |
| 2 | Liquid Fund | Invest in debt and money market instruments – Maturity of up to 91 days |
| 3 | Ultra-short Duration Fund | Invest in Debt & Money Market instruments – Macaulay duration of the portfolio to be between 3 – 6 months |
| 4 | Low Duration Fund |
Invest in Debt & Money Market instruments – Macaulay duration of the portfolio to be between 6 – 12 months |
| 5 | Money Market Fund | Invest in Money Market instruments – Maturity up to 1 year |
| 6 | Short Duration Fund | Invest in Debt & Money Market instruments – Macaulay duration of the portfolio to be between 1-3 years |
| 7 | Medium Duration Fund | Invest in Debt & Money Market instruments – Macaulay duration of the portfolio to be between 3 – 4 years |
| 8 | Medium to Long Duration Fund | Invest in Debt & Money Market instruments – Macaulay duration of the portfolio to be between 4-7 years |
| 9 | Long Duration Fund | Invest in Debt & Money Market instruments – Macaulay duration of the portfolio to be more than 7 years |
| 10 | Dynamic Bond | Investment across duration |
| 11 | Corporate Bond Fund | Minimum 80% investment in corporate bonds (only in highest rated instruments |
| 12 | Credit Risk Fund | Minimum 65% investment in corporate bonds (below highest rated instruments) |
| 13 | Banking and PSU Fund | Minimum 80% investment in Debt instruments of banks, Public Sector Undertakings, Public Financial Institutions |
| 14 | Gilt Fund | Minimum 80% investment in Government Securities (across maturity) |
| 15 | Gilt Fund with 10-year constant duration | Minimum 80% investment in Government Securities (so that the Macaulay duration of the portfolio is equal to 10 years) |
Hybrid Schemes
| Sr. No. | Category | Scheme characteristics/minimum conditions |
|---|---|---|
| 1 | Conservative Hybrid Fund | Minimum equity component – Between 10% and 25% Minimum debt component – Between 75% and 90% |
| 2a | Balanced Hybrid Fund | Minimum equity component – Between 40% and 60% Minimum debt component – Between 40% and 60% The AMC cannot do any arbitrage in this scheme |
| 2b | Aggressive Hybrid Fund | Minimum equity component – Between 65% and 80% Minimum debt component – Between 20% and 35% |
| 3 | Dynamic Asset Allocation (or Balanced Advantage) |
Invest in equity or debt – AMC to manage it dynamically |
| 4 | Multi-Asset Allocation | Invests in at least three asset classes with a minimum allocation of at least 10% each in all three asset classes Note: AMC cannot offer foreign securities as a foreign asset class |
| 5 | Arbitrage Fund | The scheme should follow an arbitrage strategy. Minimum equity component – 65% |
| 6 | Equity Savings | Minimum equity component – 65% Minimum debt component – 10% AMC to state minimum hedged & unhedged in the Scheme Information Document (SID) AMC to state Asset Allocation under defensive considerations in the Offer Document |
Note: Mutual Funds can offer either an Aggressive Hybrid fund or a Balanced fund
Solution Oriented Schemes
| Sr. No. | Category | Scheme characteristics/minimum conditions |
|---|---|---|
| 1 | Retirement Fund | Lock-in: At least 5 years or till retirement age, whichever is earlier |
| 2 | Children’s Fund | Lock-in: At least 5 years or till the child attains the age of majority, whichever is earlier |
Other Schemes
| S. No. | Category | Scheme characteristics/minimum conditions |
|---|---|---|
| 1 | Index Funds/ Exchange Traded Funds | Minimum 95% investment in securities of a particular index (which is being replicated/ tracked) AMC to mention the name of the index |
| 2 | Fund of Funds (Overseas/ Domestic) | Minimum 95% investment in the underlying fund AMC to mention the name of the underlying fund |