Mutual funds in India can be categorized into various types depending on their structures, underlying investments, tax treatment, nature of the scheme management and various invest or goals. Based on these parameters there can be two types of mutual funds:-
However, some close ended funds can become open ended funds after the maturity date or the AMC might give option to roll over the redemption proceeds to some other fund.
Based on the underlying investments in open and closed ended funds, broadly there are 4 different types of mutual funds in India. But before that, let us see what are Mutual Funds in India
The majority of mutual fund schemes (whether large cap, diversified or mid and small cap) invests across many sectors and therefore can be called diversified equity schemes. Some mutual fund schemes, however, may invest in particular sectors (e.g. banking, FMCG, pharma, technology, infrastructure, automobile or entertainment etc.). These funds are called sector funds and therefore, they are not diversified equity funds.
Debt funds can be further categorized into sub-categories depending on the basis of the maturities or durations of the underlying securities in the scheme portfolio. Liquid funds invest in money market securities whose residual maturities are usually less than 90 days. Ultra-short term debt funds invest in money market securities whose residual maturities are in the range of 90 days to a year. Short term debt funds invest in debt securities whose maximum duration is 2 – 3 years, while long term debt funds (popularly known as income funds) invest in debt securities with longer durations.
Did you know which are the top ELSS Funds
We have seen what are different types of mutual funds in India, however, from a tax perspective there are only two types of mutual funds in India – equity funds and non-equity funds. Equity funds have at least 65% exposure to equity or equity related securities, whereas non-equity funds have less than 65% exposure to equity. Equity funds enjoy equity tax benefits; the tax treatment of non-equity funds is different from equity funds.
Finally there are mutual funds schemes in India which aim to provide solutions to specific investor goals like retirement planning, children’s higher education or marriage, asset allocation, dynamic funds etc. Examples of these types of funds are retirement plans, children plans, asset allocation funds, dynamic funds and life stage funds etc.
Mutual funds provide customized solutions to a variety of investment goals and have many benefits. But did you know all the benefits of investing in mutual funds in India?