MUTUAL FUNDS

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What are Mutual Funds?
Mutual funds are professionally-managed investment scheme which is managed by an asset management company like HDFC, ICICI, Kotak who brings group of investors together and invests their money in Bonds, Stocks, Gold and other securities.



Equity Mutual Funds : An equityfundbasically invests in stocks. It can be actively or passively managed. Suitable for investor whose has higher risk appetite and looking for high returns. Suitable for long term investment horizon, ideally 7-10 years minimum.


Types of Equity Funds

  • Large Cap Fund– Invests 80% of assets in largest 100 companies in terms of Market Capitalization. Large cap fund carries lower risk and modest returns.

  • Mid Cap Fund - Invests 65% of assets in midcap companies i.e companies ranked between 101-250 in term of Market Capitalization. These schemes are volatile and risky and is suitable for aggressive investors.

  • Small Cap Fund - Invests 65% of assets in small cap companies i.e companies ranked between 251-500 in term of Market Capitalization. Such funds are considered to be very risky but also have potential to offer higher returns. Suitable for very aggressive investor and suitable for long term.

  • Multi Cap Fund – Invests across Large, Mid and Small cap stocks. They are mandated to invest minimum of 65%  of the assets in stocks. Suitable for investor having moderate risk appetite.

  • Large & Mid Cap Fund - Invests minimum of 35% in both large as well as mid cap stocks. Since it has mid cap exposure such funds are considered risky and is suitable for investor with high risk appetite.

  • Dividend Yield Fund - Invests majorly in dividend yielding stocks and at least 65% of total assets in equity.

  • Value Fund - Follows a value investment strategy and invests 65% of assets in equity. In value investment style, fund manager bets on stocks that are undervalued.

  • Contra Fund - Follows a contrarian investment strategy and invests 65% of assets in equity.  In Contra investment style, fund manager takes contrarian view.

  • Sectoral/Thematic Fund - Invests at least 80% of assets in equity belonging to a particular theme or a sector. Considered high risk fund as their fortune depends on the performance of a particular sector.

  • Focused Fund – Invests in maximum of 30 stocks and should invest 65% of assets in equity. They can be risky as if the fund managers call of stock picking goes wrong and can offer great returns if stock performs.

  • Equity Linked Saving Schemes (ELSS) – ELSS are tax saving mutual fund schemes with a lock-in period of 3 years and should invest 80% of assets in equity. Also eligible for tax deduction under section 80C.

    • Types of Hybrid funds

  • Balanced Hybrid Fund - Invests 40% - 60% of total assets in equity and 40% -  60% of total assets in debt.

  • Aggressive Hybrid Fund -   Invests 65% - 80% of total assets in equity and  20% - 35% of total assets in debt.

  • Conservative Hybrid Fund - Invests 10% - 25% of total assets in equity and 75%- 90%  in debt securities.

  • Dynamic Asset Allocation or Balanced Advantage Fund - Invest in dynamically managed equity or debt securities.

  • Multi-Asset Allocation Fund - Invests in a minimum of three asset classes like equity, debt and arbitrage with a minimum allocation of 10% in each asset class.

  • Equity Savings Fund - Invests at least 65% of the total assets in equity and at least 10% of total assets in debt.

  • Arbitrage Fund – These funds follow arbitrage strategy and invest at least 65% of assets in equity and its related securities.

    • Debt Funds
    Debt mutual funds invest in various fixed income instruments like bank Certificates of Deposits (CDs), Commercial Papers (CPs), treasury bills, government bonds (G-secs), PSU bonds and corporate bonds/debentures, cash and call instruments, and so on.A debt fund may invest in short-term or long-term bonds, money market instruments or floating rate debt.

    Types Of Debt Funds

  • Overnight Fund-  invests in overnight securities with a maturity of 1 day.  These schemes are ideal for investors who have very short tern investments horizon with very low risk.

  • Liquid Fund -invests in debt and money market securities having a maturity of up to 91 days only. Investors can invest in them for few days to few months. This funds can offer marginally higher returns than Bank fixed deposits.

  • Ultra Short Duration Fund - invests in debt and money market securities with portfolio duration between 3 months and 6 months. Ultra short duration funds are least impacted by the interest rate movement in the system.

  • Low Duration Fund - invests in debt and money market securities with portfolio duration between 6 months and 12 months. Low duration funds are ideal for investors who want to invest their money for atleast one year.

  • Money Market Fund-  invest in money market securities with maturity of up to 1 year.  These scheme invests in high quality money market instruments. It provides reasonable returns along with good liquidity.

  • Short Duration Fund-  invests in debt and money market securities  having duration of the portfolio is between 1 year and 3 years. These schemes are impacted by the interest rate movements in the system and are suitable for investor who wants to invest for few years.

  • Medium Duration Fund-  invests in debt and money market securities having  duration of the portfolio between 3 years and 4 years. These schemes are susceptible to interest rate movement and are slightly riskier than short duration funds. Investor having horizon of 3-4 years should invest in Medium duration funds.

  • Medium to Long Duration Fund - invest in debt and money market securities having duration of the portfolio between 4 years and 7 years. Suitable for investors with long term investment horizon and who can take additional risk for returns.

  • Long Duration Fund- invests in debt and money market securities having duration of the portfolio more than 7 years. These schemes are extremely sensitive to interest rate changes. When interest rate goes up, the returns of scheme is hit badly and are capable of giving high returns in falling interest rate scenario. Suitable for investor having higher risk appetite and longer investment horizon.

  • Corporate Bond Fund-  invests 80% of assets in highest rated corporate bonds. This funds are considered safer because they invests in highest rated corporate bonds.

  • Dynamic Bond Fund - invests across duration.  The fund manger in these schemes has the freedom to switch durations as per his view on changing interest rate. Suitable for investor who wants to leave the job of taking a call on interest rates to fund manager.

  • Banking & PSU Fund -   invests 80% of assets in debt securities of banks, public sector undertakings, and public financial institutions.

  • Credit Risk Fund - invests 65% of assets in the highest rated corporate bonds / lower than AA- rated papers. These funds are considered risky as the instruments are more likely to default than the highest rated papers but can generate higher returns also.

  • Floater Fund - invests 65% of total assets in floating rate instruments. The fund takeadvantage of the fluctuation in interest rates to generate quality returns for investors.

  • Gilt Fund - invests 80% of assets in government securities across maturity. These schemes do not carry default risk as they invest in securities backed by the government.

  • Gilt Fund with 10 year Constant Duration - invests 80% of assets in government securities so that the portfolio’s has constant maturity of 10 years. The scheme is highly susceptible to interest rate movements because of higher duration of portfolio. The scheme can give higher returns when the interest rates are easing.

    • Type of Gold Funds

  • Gold Exchange Traded Funds - track the price of gold and are traded in stock markets. IDBI Gold ETF, SBI Gold ETF and Birla Sun Life Gold ETF are a few examples of Indian Gold ETF trading in stock exchanges. This method eliminates the need to physically hold gold.

  • Gold Mutual Funds (Funds of Funds) - These are open ended scheme which invest in units of Gold Exchange Traded funds on behalf of the investor. As the name suggests it a fund investing in funds and one does not need to open a demat account as is required in gold ETFs.

  • Gold Mining Funds - These fundsinvest in companies that are involved in the mining of gold anddo not invest in physical gold.Hence the returns of gold mining funds depend on the performance such gold mining companies.

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