Mutual Funds

Equity Funds

these funds as per SEBI MF regulations are schemes that primarily invest in shares/Stocks of companies. They may be actively or passively (like in ETF and Index funds) managed. These funds are also called as Growth Funds.

Principally equity funds are classified basis the company size (investment style/ holdings in portfolio) that the fund is investing in; viz.

 Large Cap MFs

 Mid Size MFs and

 Small Cap MFs

Then there are Sectoral Funds where money is invested in various themes/sectors like infrastructure, real estate, pharmaceuticals, software, etc.

Depending on geography of investments/holdings, equity funds are also categorised into Domestic and International funds.

Debt Funds

Also referred to as Bond funds and Fixed Income funds, these Mutual Funds invest in ‘fixed income instruments’(hence less volatile) like, Corporate and Government Bonds, corporate debt securities, and money market instruments etc. that offer capital appreciation.

So for investors, who are risk averse, yet want look for returns higher than FDs and regular incomes through interest payouts; debt funds could be a wise choice to achieve financial goals through a tax efficient tool.

Liquid Funds

Objective of these funds is capital protection. These MFs invest in highly liquid ‘money market instruments’ and debt securities with good credit ratings (hence lesser probability of default) that has maturity of less than 91 days. Used mainly to park money for a short period, redemption of liquid funds happens within one working day. These very short-term instruments include –

 Treasury Bills (T-bills),

 Certificates Of Deposit (CD)

 Commercial Paper (CP), etc.

Balanced Funds

Also known as the Hybrid Fund, asset allocation in this fund comprises of a fixed proportion of assets in equity, debt and sometimes money market instruments too. While ‘Equity- oriented Balance Funds’ can have up-to 65% equity exposure (thus subject to greater market volatility), ‘Debt-oriented Balance Funds’ on the other hand are less volatile with higher exposure to debt instruments.

Suitable for medium-term investment horizon, these funds offer a mix of safety and humble capital appreciation.

 Exchange Traded Funds (ETFs) – ETFs are kind of MFs that tracks the index and are passively managed to match returns of the index viz. BSE Sensex or CNX Nifty, that they belong to. Units/shares of any ETF consist of units/shares of the portfolio that consists of the mother index. One needs a demat account to invest in ETFs.

The biggest difference between a general MF and ETF is that the latter is traded like any stock in a stock exchange. Hence the trading price of a unit/share of ETF changes throughout the day and gives more liquidity (and lesser fees) to an investor. This makes ETF an ‘attractive alternative investment option’ to some investors.

 Fund of Funds (FoF)- Also referred to as a ‘Multi-Manager Investment’, this scheme fundamentally invests in units of other MF schemes of one single fund house or even other MF houses. FoF schemes, spreads investments in multiple funds with an objective to diversify risks.

Experts opine that FoF are best suited for ‘smaller investors’ who look for accessing array of asset classes at minimum risk.

 ELSS or Equity Linked Savings scheme are equity funds that invest a major portion of their corpus into equity or equity-related instruments. These funds offer tax exemption of up to Rs. 1,50,000 from your annual taxable income under Section 80C of the Income Tax Act.