Different types of mutual funds

Did you know?

The mutual fund industry has been in India since 1963.

Mutual funds, which were formerly a minor player on the financial scene, now have a significant impact on how tradable assets like stocks and bonds are valued.

India currently offers a vast variety of mutual fund schemes across many different categories. These mutual fund schemes can be broadly categorised according to the asset classes, structures, and investing goals. Each has a unique risk and reward profile. Therefore, it is important to select the mutual fund scheme that perfectly fits your investment philosophy and financial objectives.

A. Mutual fund schemes based on asset class

Equity oriented schemes

These schemes invest largely in the stocks or shares of different companies. They are typically viewed as high-risk because they tend to be affected by equity market movements.

Debt oriented schemes

These schemes make investments in a variety of debt securities, such as government bonds, fixed-income assets, and debentures. They are often less volatile in the short run compared to the equity market.

Hybrid schemes

These schemes frequently invest in a variety of asset classes including debt, equity and commodities. The distribution of assets between various asset classes might help in providing diversification to the investment portfolio while also having the potential for returns.

B. Mutual fund schemes based on structure

Mutual fund schemes can be divided into two types based on their structural portfolio. Which are:

1. Open-ended schemes

Open-ended schemes are the kind of mutual fund schemes that can be purchased and redeemed at any time. They do not have a set time after which they cease to exist. However, scheme units can only be purchased at the prevalent net asset value (NAV). Investors often favour them because they help provide liquidity.

2. Close-ended schemes

In contrast to open-ended schemes, close-ended schemes operate by a set schedule. Investment in close ended schemes is time-limited, and they can only be redeemed on the predetermined maturity date. Investors who wish to lock-in their money for a set period favour them.

Mutual fund schemes based on investment objective

Solution-oriented schemes

Solution-oriented schemes are close-ended schemes with a minimum lock-in period of 5 years. This means these funds would be suitable for those looking to invest for a more extended period with a specific investment goal. Funds under this scheme are either equity-oriented mutual funds, debt-oriented mutual funds, or a mix of both funds.

There are two types of funds under solution-oriented schemes. Let’s understand them in detail.

Retirement Fund

A retirement fund is a solution-oriented scheme, designed to meet your retirement goals. These funds have a minimum lock-in period of 5 years or till retirement age (whichever is earlier).

Children’s Fund

A children’s fund is a solution-oriented scheme, designed to help your child’s education goals. These schemes have a minimum lock-in period of 5 years or till your child attains the age of majority (whichever is earlier).

Index Funds

An index fund is a type of mutual fund that mirrors a market index. The securities held in an index fund portfolio are identical to those of the index. They are not rebalanced depending on the fund manager’s assessment of the market or a particular sector.

At the same time, since index funds are managed passively, the fund manager only sometimes makes small changes to keep the fund’s performance in line with the index. As a result, index funds provide the same return and risk as the index they monitor.

Exchange-Traded Funds (ETFs)

An ETF (Exchange-traded fund) is a basket of securities that tracks an index, commodity, or bond similar to index funds. ETFs are traded on the stock exchange. Its traded price can vary throughout the day, unlike the mutual fund. ETFs are usually passively managed.

Fund of Funds (FoFs)

Mutual fund schemes known as ‘fund of funds’ invest in the shares of other similar or unrelated mutual fund schemes.

Based on FoF’s investment purpose, the scheme for investment will be chosen.

To sum up

It is important to understand the different types of mutual fund schemes before investing. This helps you in making an informed decision. At the same time, considering your investment goals and risk appetite at the time of investment is equally important.


Investments done by FOF schemes in various asset classes will be through other schemes and not directly into any such asset class. The schemes mentioned in the FOF schemes’ portfolio do not constitute any recommendation and the FOF schemes mentioned may or may not have any future position in these schemes.

An investor education initiative
www.icicipruamc.com/note to know more about the process to complete a one-time Know Your Customer (KYC) requirement to invest in Mutual Funds. Investors should only deal with registered Mutual Funds, details of which can be verified on the SEBI website

http://www.sebi.gov.in/intermediaries.html For any queries, complaints & grievance redressal, investors may reach out to the AMCs and/or Investor Relations Officers. Additionally, investors may also lodge complaints on
https://scores.gov.in if they are unsatisfied with the resolutions given by AMCs. SCORES portal facilitates you to lodge your complaint online with SEBI and subsequently view its status.