Mutual Funds

Mutual funds pool money from multiple investors to invest in a diversified portfolio of securities, managed by professional fund managers. Classification by Asset Class: 1. Equity Funds: • Invest primarily in stocks (minimum 65% in equity) • Higher risk and return potential • Suitable for long-term wealth creation • Tax-efficient for long-term investments Sub-categories: • Large Cap Funds - Top 100 companies by market cap • Mid Cap Funds - 101st to 250th companies • Small Cap Funds - Companies ranked 251st onwards • Multi Cap Funds - Flexible allocation across market caps • Flexi Cap Funds - No restriction on market cap allocation 2. Debt Funds: • Invest in fixed-income securities (bonds, debentures) • Lower risk compared to equity funds • Provide regular income through interest • Suitable for conservative investors Types of Debt Funds: • Liquid Funds - Very short-term (up to 91 days) • Ultra Short Duration - 3 to 6 months • Short Duration - 1 to 3 years • Medium Duration - 3 to 4 years • Long Duration - More than 7 years • Credit Risk Funds - Lower-rated securities for higher yield 3. Hybrid Funds: • Invest in both equity and debt securities • Balanced risk-return profile • Automatic rebalancing between asset classes • Suitable for moderate risk investors Types of Hybrid Funds: • Conservative Hybrid - 10-25% equity, 75-90% debt • Balanced Hybrid - 40-60% equity, 40-60% debt • Aggressive Hybrid - 65-80% equity, 20-35% debt • Dynamic Asset Allocation - Flexible allocation based on market conditions Classification by Investment Objective: 1. Growth Funds: • Focus on capital appreciation • Reinvest profits for compounding • No regular income distribution • Suitable for long-term wealth creation 2. Income Funds: • Focus on regular income generation • Invest in dividend-paying stocks and bonds • Distribute income periodically • Suitable for retirees and income-seekers 3. Balanced Funds: • Combination of growth and income • Diversified across asset classes • Moderate risk and return • Suitable for balanced portfolios Specialized Fund Categories: 1. Sectoral/Thematic Funds: • Invest in specific sectors (banking, pharma, IT) • Higher risk due to concentration • Potential for high returns in favorable cycles • Require market timing and sector knowledge 2. Index Funds: • Passively managed to replicate market indices • Low expense ratios • Returns match market performance • Suitable for passive investors 3. Exchange Traded Funds (ETFs): • Trade on stock exchanges like individual stocks • Lower costs than traditional mutual funds • Real-time pricing and liquidity • Variety of underlying assets and strategies 4. International Funds: • Invest in foreign markets • Currency diversification • Access to global opportunities • Higher costs and tax implications Fund Structure Types: 1. Open-Ended Funds: • Can issue unlimited units • Buy/sell at NAV-based prices • High liquidity • Most common structure 2. Close-Ended Funds: • Fixed number of units • Trade on stock exchanges • May trade at premium/discount to NAV • Fixed maturity period 3. Interval Funds: • Combination of open and close-ended • Periodic liquidity windows • Higher return potential • Limited liquidity Tax Implications: • Equity Funds: Long-term gains (>1 year) taxed at 10% above ₹1 lakh • Debt Funds: Gains taxed as per income tax slab • Dividend Distribution Tax abolished, dividends taxable in investor's hands • SIP investments have separate holding periods for each installment