Types of Mutual Funds | Mutual Fund Types

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Mutual funds are one of the best options to create wealth in the long run. That is why many of us invest in mutual funds or want to invest. However, do you know there are different types of mutual funds? As a mutual fund investor, you must have this knowledge. In this post, we have discussed the types of mutual funds. Read the article completely to know every detail.  

There are different types of mutual funds. Mutual funds are classified in various categories depending on various factors, like – in what kind of asset it is investing, in which companies the fund is investing, in what kind of asset it is investing, is the mutual fund serving any special purpose, etc.

Primarily, mutual funds are classified into three categories. These are as below –

1. Equity Mutual Fund
2. Debt Mutual Fund
3. Hybrid Mutual Fund
4. Theme Based/Sector Specific Mutual Fund

Equity Mutual Fund

Equity mutual funds invest most of their capital in various stocks listed in the stock market. Further, depending upon the stocks in which mutual fund houses are investing, mutual funds can be further classified into five sub-categories.

1. Large Cap Mutual Fund
2. Mid Cap Mutual Fund
3. Small Cap Mutual Fund
4. Multi Cap Mutual Fund
5. Index Mutual Fund

Large Cap Mutual Fund

Large Cap Mutual Funds invest their capital in companies with large market capitalization. Large cap companies are those that have a market capitalization of 20,000 crores or more. Click here to know the best large cap mutual funds for 2022.

Mid Cap Mutual Fund

Mid Cap Mutual Funds invest their capital in companies with medium market capitalization. Mid cap companies are those that have a market capitalization of more than Rs. 5,000 but less than 20,000 crores.

Small Cap Mutual Fund

Small Cap Mutual Funds invest their capital in companies that have very small market capitalization. Small cap companies are those that have a market capitalization of below Rs. 5,000 crores.

Multi Cap Mutual Fund

Multi Cap Mutual Funds invest their capital collectively in large cap, mid cap, and small cap companies.

Debt Mutual Fund

These mutual funds invest their capital in various debt funds like bank FD, government bonds, etc. As a result, the return on these funds is very low. However, the risk is also very poor in debt mutual funds.

Hybrid Mutual Funds

Hybrid mutual funds invest some of their capital in equity and some in debt funds like government bonds, debentures, etc. These funds are also called as Balanced mutual funds. The allocation of capital keeps changing in this fund according to the market sentiment. 

ELSS Mutual Funds

Upon investing in elss mutual funds, investors get tax benefits under 80C of the income tax act. For this reason, these funds are also called tax-saving mutual funds. To know about the best ELSS Funds for 2022 click here.   

Index Mutual Funds

Index mutual funds only invest in the companies which form indexes like nifty 50, Sensex 30, nifty next 50, etc. These funds strictly invest in the stocks comprising the indexes. As these funds are directly linked to the indexes, the return percentage is also similar to the growth of the index. Out of all the index funds, nifty 50 index funds are considered the most popular investment option.

Theme based Mutual Funds (Sector Specific Mutual Fund)

There are some mutual funds that invest in a group of companies with similar businesses. For example, SBI Technology fund invests in companies like TCS, Wipro, Bharti Airtel, etc. while ICICI Prudential FMCG Fund invests in ITC, HUL, Dabur, etc. As these funds invest in companies with a specific themes, they are also called Theme based mutual funds.

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Also Read: – 

Best ELSS Mutual Funds | Best Tax Saving Mutual Funds