There are various types of mutual fund for different investors because the requirements of the investors very person to person. Some people would have regular income requirement and some would require to increase in their value etc.
Now we will understand all those different types of mutual fund in an easy language.
OPEN-ENDED AND CLOSE-ENDED
Primarily it possesses two categories. The word itself explain the meaning open means available all the time. All the time means there is no lock-in period in this type of mutual fund, any time you can invest and any time you can sell. There is no restriction, e.g if you invest in a fund on 10th of January then after 10th, you can sell any time e.g 20th of January or maybe after 10 or 20 years.
On the other hand, close-ended funds contain login period. It means once you purchase the fund under this category then you can sell unless the specified period of time.
For instance, ELSS funds are close-ended because it possesses 3 years lock-in period before that you can not sell the funs.
INCOME FUND AND GROW FUND
On the basis of mode of income, it has two types of mutual fund. Income fund means which gives you regular return in cash that is in the form of a dividend.
On the other hand undergrowth fund, your fund value will keep on increasing. In other words, it means giving full time to your money to grow.
Here it needs to understand that returns are the same in both the category.
Let’s understand how this type of mutual funds works?
Once you select any type of mutual fund it will ask you the option to choose either income or growth. Now for example, if the return of the fund is 12% and the selected option is growth then there will be the same growth by 12%. On the other side if there is an income option then 6% from 12% will give you as a dividend and remaining by 6% will be growth.
EQUITY, DEBT AND BALANCED FUND
On the basis of the portfolio, it is divided into three different categories.
Equity fund, under this category the funds are invested only in equity share. It means you can expect a higher return with higher risk.
This fund is for those who are willing to take a risk and can stay for the long term.
Under this category, the funds are Invested only in debt-oriented instruments. For example, funds are invested in government’s bond, corporate’s bonds etc. This fund is for who are risk-averse.
Refers to the fund which Invests in both the category I.e equity and debt. This fund is for those who want the return of both equity and debt. Those who want a bit of risk and want to be secure can also opt this fund.
LARGE-CAP, MID-CAP AND SMALL-CAP
On the basis of market capitalisation(Cap), it has three classifications. Market capitalisation simply means the value of the total share of the company.
It’s is derived as
Market price of the share * Total number of shares issued by the company.
Under this category, the funds are invested in those companies which are top 100 company by market capitalisation.
The large-cap companies share prices are not more volatile as compared to other caps. The value of the shares prices do go up and down but not very much high and low.
The good portfolio contains more of large-cap funds for long term perspective.
In this category, the funds are invested in those companies which are next to 100 i.e from 101 to 200.
These companies share prices are more volatile than the large-cap. In this category, the return can be expected more, but the risk is also comparatively high.
In this category, the funds are invested next to 200 & so on and so forth. These stocks are more volatile in nature. In a very short span of time, you would see sudden high and very low return too.
One can go with this kind of mutual fund if they are having more time to keep the money undisturbed.
Because these companies are very much volatile in nature. Therefore while making the Investment you must consult financial planner so that the risk can be minimised.
These are some of the most known types which the investors must know before investing.
And whenever you will select the mutual fund to invest all the types which are discussed above will be there.