Mutual funds offer multiple options when it comes to investment choices. You get multiple options to choose funds depending on your risk appetite, time horizon, and financial goals. You get to choose funds depending on maturity periods like close and open-ended funds, interval funds, and more. And then, you get to select funds based on the investment objective. Some examples are growth or equity funds, balanced funds, debt or income funds, money market or liquid funds, and more.
However, it is important to understand attributes of different types of mutual funds so that you make the right investment choice. So, let’s get going and understand basics of different types of mutual funds on offer.
Schemes as Per The Maturity Period:
Based on the maturity period, the schemes for mutual funds can be readily classified into the close-ended or open-ended scheme. Learning about the options beforehand will be a great call to address.
- Open-Ended Scheme Or Fund:
These funds are available for subscription and can be repurchased on a continuous basis. These funds do not have a fixed maturity period. The investors get the chance to buy and sell units at NAV-related rates, declared on a daily basis. The main feature over here is liquidity.
- Close Ended Scheme Or Fund:
These funds have fixed period of maturity, generally ranging between 3 to 5 years. These funds are only open for subscription for a certain period at the time of its launch. Investors get the chance to invest in the scheme at the time of the new fund offer and post that these funds do not allow any further subscription. After the stipulated maturity, you will get the proceeds of maturity from these schemes. The units of close ended funds are also listed on stock exchanges, however in most cases liquidity on exchange is limited.
For providing an exit route, some of the close-ended funds will give out the option to sell back units to the mutual fund through periodic repurchase at the NAV specified prices. These funds are known as Interval Funds.
Schemes Based On Investment Objective:
Mutual Funds can further be classified as an income scheme, growth scheme, or balanced scheme. It depends on the investment objectives.
- Equity Oriented Or Growth Scheme:
The main aim over here is to offer capital appreciation over a medium to long term. These schemes will invest a major part of the corpus in equities and will have higher risk associated along with potential for higher returns.
- Debt Oriented Or Income Scheme:
The main goal over here is to offer steady or regular income to the investors. These schemes will invest mostly in fixed income securities like corporate debentures, bonds, money market instruments, and government securities.
These schemes invest both in fixed income securities and equities in portions as mentioned in offer documents. If you are looking for moderate growth, this one’s for you.
Checking out all the options and schemes before making the final investment is a good call from your side. Make sure to go through all the possible options before heading for the final say.