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2 mins Read | 1 Year Ago

What are the Different Types of Mutual Funds in India?


Mutual funds are one of the most popular forms of investments available in the market today. Mutual funds operate at the behest of asset management companies (or AMCs) that pool together investments from multiple individuals along with institutional investors that each have similar investment objectives. Fund managers are responsible for keeping an eye out for and managing these pooled investments. Mutual funds serve as the perfect tool with which individual investors get exposed to portfolios managed by experts. Read on to understand the varied forms of mutual funds that exist in the country.

Types of Mutual Funds

There exists a wide range of mutual funds available in India today that are broadly categorized into equity funds, debt funds and balanced mutual funds that are based on the asset allocation in place and exposure to equity. Read on to understand each of them.

1. Equity Funds

As the name might indicate, such mutual funds primarily invest in equity shares of companies spread across all market capitalizations. In order to be classified as an equity fund, a mutual fund must invest at least 65 per cent of its portfolio in equity instruments. Such funds have the potential to accrue the highest returns amongst all available mutual funds. Returns provided under these mutual funds are dependent upon the movement of the markets which are in turn affected by and subject to a number of geopolitical and economic influences. Equity funds can be of the following types.

  • Small-cap Funds

  • Mid-cap funds

  • Large-cap funds

  • Multi-cap funds

  • Sector or thematic funds

  • Index funds

  • Equity-linked savings schemes

2. Debt Mutual Funds

These mutual funds are primarily invested in the debt and money market in addition to other fixed-income instruments. These include but aren’t limited to certificates of deposits, government bonds and treasury bills. In order to be classified as a debt fund, a mutual fund must invest at least 65 per cent of its portfolio in debt securities. These mutual funds are best suited to investors that are averse to risk as the performance of such funds is not too affected by market fluctuations. Owing to that fact, returns on offer via these debt funds are predictable. Debt funds can be of the following types.

  • Dynamic bond funds

  • Income funds

  • Short term and ultra short term debt funds

  • Liquid funds

  • Gilt funds

  • Credit opportunities funds

  • Fixed maturity plans

3. Balanced / Hybrid Mutual Funds

Hybrid or balanced mutual funds are made of investments in both equity and debt instruments. The primary objective of such funds is to create a balance between the risk and reward ratio which is accomplished by creating diversity within the portfolio. Fund managers are responsible for modifying asset allocations of the fund in accordance with the prevailing market conditions with an aim to benefit investors and mitigate risk levels. By investing in a balanced mutual fund you can diversify your own portfolio as you expose yourself to equity as well as debt instruments. Balanced funds can be of the following types.

  • Equity oriented hybrid funds

  • Debt oriented hybrid funds

  • Monthly income plans

  • Arbitrage funds


Investing in mutual funds is beneficial for a wide range of reasons. For starters, your investments are handled by experts who know what they are doing which entitles you to not necessarily be entirely proficient with the markets. Most mutual funds aren’t tethered to lock-in periods which makes it easy to withdraw money should you feel the need to. ELSS mutual funds are the sole mutual funds that have a lock-in period. To add to their appeal, mutual funds are easy to invest in owing to the low cost they require which opens up the number of investors that can invest in them. One of the biggest benefits of investing in mutual funds is that it allows you to invest a small amount in a systematic investment plan on a regular basis. Should you find that you would like to move your investments to a varied fund falling under the same fund house, you have the flexibility to do so.

Allowing for diversification and serving as a form of goal-based funds, mutual funds are highly liquid entitling you as an investor to fall back on these investments in the event that you have a financial crisis. The benefits of mutual funds are vast and should not be dismissed.



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