It is important to understand the Mutual Fund type and their features. Mutual Fund types can be classified based on the following characteristics.

Various type of Mutual Funds exist to cater to different needs of different people. Largely, they are of three types.

Equity or Growth Funds

• These invest predominantly in equities i.e. shares of companies
• The primary objective is wealth creation or capital appreciation.
• They have the potential to generate higher return and are best for long-term investments.

Examples would be

• “Large Cap” funds which invest predominantly in companies that run large established business
• “Mid Cap” funds which invest in mid-sized companies.
• “Small Cap” funds that invest in small sized companies
• “Multi Cap” funds that invest in a mix of large, mid and small sized companies.
• “Sector” funds that invest in companies that are related to one type of business.

For e.g.Technology funds that invest only in technology companies

• Thematic” funds that invest in a common theme. For e.g. Infrastructure funds that invest in companies that will benefit from the growth in the infrastructure segment
• Tax-Saving Funds

Income or Bond or Fixed Income Funds

• These invest in Fixed Income Securities, like Government Securities or Bonds, Commercial Papers and Debentures, Bank Certificates of Deposits and Money Market instruments like Treasury Bills, Commercial Paper, etc.
• These are relatively safer investments and are suitable for both Capital Protection and Income Generation.
• Example would be Liquid, Short Term, Floating Rate, Corporate Debt, Dynamic Bond, Gilt Funds, etc.

Hybrid Funds

• These invest in both Equities and Fixed Income, thus offering the best of both, Growth Potential as well as Income Generation.
• Example would be Aggressive Balanced Funds, Conservative Balanced Funds, Pension Plans, Child Plans and Monthly Income Plans, etc.