Types of Mutual Funds

Equity Mutual Funds
Investopedia defined Equity Mutual funds as 'A mutual fund that invests principally in stocks. It can be actively or passively (index fund) managed.'

Stock mutual funds are principally categorized according to company size, the investment style of the holdings in the portfolio and geography: Size is determined by a company's market capitalization, while the investment style, reflected in the fund's stock holdings, is also used to categorize equity mutual funds.

Stock funds are also categorized by whether they are domestic (India) or international. These can be broad market, regional or single-country funds.

There are so-called "specialty" stock funds that target business sectors such as Infrastructure, Banking, FMCG etc.

FundsIndia offers a very wide variety of Equity mutual funds. Every mutual fund company will carry at least one diversified equity mutual fund that invests in the stock markets.

There are different varieties of equity mutual funds in the market. You can view them all in our mutual fund explorer.

Some of the popular equity fund categories are

  1. Large cap funds
  2. Small and mid-cap funds
  3. Multi-cap funds
  4. Thematic funds
  5. Tax saving funds

The first few of these categories are by the size of the companies that the fund invests in. The other categories are more specialized.

Debt Mutual Funds
Debt mutual funds are the funds that invest in a mix of debt instruments or fixed income securities which include government securities, corporate bonds, treasury bills, Certificate of Deposits (CDs), Commercial Papers (CPs), bonds and money market instruments and many more.

These are called debt instruments because the issuers have borrowed money from the lender (investors) by issuing these instruments. These "debts", are income generating instruments. This income could be monthly, semi-annually, annually or at maturity. However, most of the debt instruments are unavailable directly to the retail investors. But, they can invest in those debt instruments indirectly through Debt Mutual Funds. Debt Mutual Funds generally protect your portfolio in an economic downturn when other avenues for investment are not performing well.

The returns of a debt mutual fund comprises of -

Interest income;

Capital appreciation / depreciation in the value of the instruments due to changes in market dynamics.

Monthly Income Plans
An MIP is nothing, but a debt oriented mutual fund which gives you income, in the form of dividends - simple as that. As MIPs are debt oriented mutual funds, they invest heavily in debt instruments like debentures , corporate bonds, government securities etc. It generally has 75-80% of its money in debt and rest in equity and cash . The income you can get from Monthly income plans is not limited to the monthly option. You can also choose to receive income quarterly, half-yearly or annually. Just like any other mutual fund, the MIP too, comes with two options.

  1. MIP with Dividend option
  2. MIP with Growth Option

Features of Monthly Income Plans

  1. Dividends can be declared only from the profits and not from Capital
  2. No guarantee of Regular Income
  3. MIPs are prone to mis-selling because of a high commission structure
  4. MIPs are prone to mis-selling because of a high commission structure