1. On the Basis of Structure
This includes Open-ended funds and Close ended funds
- Open Ended Funds:
Liquidity is a key feature of open ended funds which means these funds are like Open Box where investor can enter into or exit from an open-end scheme anytime at NAV (Net Asset Value) related prices.
Open-ended funds are popular with investor because they operate in similar way to stock market where no maturity or Lock-in Period (It is minimum period for which you cannot sell your Investments) is involved.
- Close-ended Funds:
A close-ended fund or scheme has a stipulated maturity period for e.g. 5-7 years. The fund is open for subscription only during a specified period at the time of launch of the scheme. Investors can invest in the scheme at the time of the initial public issue and thereafter they can buy or sell the units of the scheme on the stock exchanges where the units are listed.
In order to provide an exit route to the investors, some close-ended funds give an option of selling back the units to the mutual fund through periodic repurchase at NAV related prices or they are listed in secondary market.
2. On the Basis of Asset Class
3. On the Basis on Investment Objective
4. Other Types
- Sector Specific Scheme
Sectoral funds, as the name suggests, invest only in one sector. For e.g. Infrastructure fund would only invest in infrastructure companies. Fund companies create these to allow investors to place bets on specific industries or sectors whenever they think that industry might heat up.
Segments where Sector specific funds invest:
1. Health care
2. Financial services
3. Infrastructure
4. Automobiles
5. FMCG
Sectoral funds carry a higher risk, along with a higher potential to generate returns. This is because their fate moves with the sector in which they invest. Therefore, if that sector performs well, they generate excellent returns.
- Index Schemes
Index attempts to replicate a stock market index or as closely as possible by investing in the stocks that form that index in the very same proportion. So a NIFTY index fund would have the same 50 companies that make up Nifty in the same weightage.
The aim of an index fund is to replicate the performance of that market index. So if the markets are rising, then your investment will rise with almost the same percentage and if it is falling, you will get similar negative returns
The main advantage of investing in an index fund is the low Expense Ratio that is incurred in these funds as compared to other investments because it is passively managed funds.
- ELSS ( Equity Linked Saving Schemes)
An Equity-linked saving scheme (ELSS) is a great investment option that offers the double benefits of Tax saving and capital Gains. As per sec 80 C, investments in ELSS are allowed as deduction from the total income, up to maximum Rs. 100,000 in a financial year. This scheme is beneficial for people who are doing job and they fall under tax bracket.
Money collected under ELSS is mainly invested in equity and equity related instruments. ELSS Schemes have 3 years Lock-in period. ((It is minimum period for which you cannot sell your Investments) Because of this, fund manager can have portfolio of stocks that can out-perform over a period of time.
The best way to invest in ELSS is through Systematic Investment Plan (SIP). With SIP you can invest a small amount every month for a specific time period. Ideally, a salaried investor should start his/her SIP in ELSS in the month of April itself so that he/she gets the benefit of Rupee Cost Averaging.
