By investment objective, following are types of mutual fund schemes:
Growth/Equity Schemes:
These schemes invest predominantly in equity stocks. Stock markets are known to be volatile, but in a rising stock market, these investments yield more returns than any
other investment.
Debt/income funds:
These are funds that invest predominantly in income bearing instruments like bonds, debentures, government securities, commercial paper etc. Income bearing instruments are
much less volatile, although they do carry credit risk. The objective of these schemes is to provide a regular and steady income to the investors.
Balanced funds:
Such funds invest both in equity shares and income-bearing instruments in the proportion indicated in their offer document. The objective is to provide both growth and income
by periodically distributing a part of the income and capital gains they earn.
Liquid Funds:
These schemes invest mainly in liquid instruments such as treasury bills, certificates of deposit, commercial paper and inter-bank call money. Liquid Funds are generally very safe.
The returns on these schemes may depends upon the short-term interest rates prevailing in the market. These are ideal for investors looking to park their surplus funds for short periods.
Floating Rate Funds: Floating rate funds invest in floating rate securities whose coupon rates are linked to a benchmark rates are aligned to any movements in the market rates. These funds
carry low interest rate risks.
Floating rate funds are of two types:
Short-Term Floating Rate Fund:
These funds invest in floating rate securities that are linked to shorter-term benchmarks like the overnight inter-bank or the call market rates, etc.
Long-Term Floating Rate Fund:
These funds invest in floating rate securities that are linked to longer-term benchmarks like the 1-year Reuters rate, etc and such funds are suitable for investment
with a longer horizon.
Gilt Funds:
These schemes invest mainly in central and state government issued securities, commonly known as Government Securities. Gilt Funds, do not carry any credit risk as investments in
Government papers have sovereign rating. However, such funds carry interest rate risk since the returns from government securities depends upon the interest rate scenarios.
Equity linked saving schemes (ELSS):
These are growth schemes with a mandatory 3-year lock- in period on investments. Investments made up to Rs. 1 lac in these schemes would be eligible for
tax deductions under Section 80C of the Income Tax Act.
Specialty Schemes:
These schemes cater to the investment objectives not covered by the other schemes:
Index Schemes:
Index schemes replicate the performance of the stock Index such as BSE SENSEX or NSE Nifty.
Sector Schemes:
Sector schemes are specialty mutual funds that invest in stocks that fall into a certain sector of the economy. Here the portfolio is dispersed or spread across the stocks of
a particular sector.