Types of Mutual Funds

Different Types of Mutual Funds Every Investor Needs To Know

Are you a business owner looking to invest in mutual funds but can’t decide which mutual fund will be the best for you? Well, since there are multiple categories and various types of mutual funds, it is more than natural to get confused. 

Mutual funds have become popular tools of investment for businesses. They are the financial instruments that help you to invest your money in a pool of financial assets and securities like bonds, stocks, etc. 

However, when it comes to mutual fund investments, there’s a huge bouquet of different mutual funds available. And, before investing in any one of the mutual funds, it is important to get a basic understanding of the different types present in the market.

For your ease of understanding, we in this blog post, have discussed in detail the different categories of mutual funds to help you understand the various types of mutual funds investment options that you can opt from, as per your unique requirements. 

Five Major Categories of Mutual Funds:

  • Based on Structure:

The structure is the broadest category of mutual funds. The structure of mutual funds depends on the flexibility and timeframe of purchasing or selling mutual funds. Mutual funds can be divided into three categories based on the structure; Open-ended, close-ended and interval funds. 

Mutual Funds Based On Structure
  1. Open-ended funds: 

The open-ended mutual fund’s scheme does not have any particular time frame during which the investors have to enter or exit the fund. They are quite flexible, the investors can enter or exit, or buy in or sell out the open-ended mutual funds whenever they find it convenient. Mutual funds investment schemes generally have New Fund Offer (NFO), a stipulated period when investors can enter the scheme by investing a fixed offer price. However, the biggest advantage of an open-ended fund is that it allows investors to invest even past NFO. 

  1. Close-ended funds:

Unlike open-ended funds, close-ended funds come with many restrictions. The first one is a fixed maturity period. Close-ended funds have a fixed maturity period which implies that the investors have to invest their cash in the funds for a particular tenure. Another restriction is that the Asset Management Company (AMC) can only sell a fixed number of mutual funds units and investors can only invest in it during the NFO period. If an investor wants to exit the close-ended fund’s scheme, he or she has to list their funds on the stock exchange. 

  1. Interval funds:

Interval funds are the best of both worlds; open-ended and closed-ended funds. Interval funds have the characteristics of both open-ended and closed-ended funds. They are open during a particular interval (minimum duration of 15 days) when investors can invest in them and then they remain closed till the maturity date. Interval funds are ideal for achieving short-term financial goals of 3 to 12 months. 

  • Based on Asset Class:
Mutual Funds based on asset classes
Mutual Funds Based on Asset Class

The next category of mutual funds is based on the Asset Class. Mutual funds categorized under the same asset class show similar characteristics, and are governed by similar laws and regulations. Following are the categories of mutual funds based on asset class:

  1. Equity Funds: 

Equity funds, also known as stock funds, invest the pooled money from different investors into the stocks, shares and equity-related instruments of different companies. Equity funds are aggressive as they depend entirely on the share’s performance. Investors that are willing to take more risk to attain larger gains usually invest in equity funds. Equity funds can generate a significant return over some time and thus, the risk associated with them is also high. 

  1. Debt Funds:

Unlike equity funds, debt funds are more conservative and secure. Debt funds invest in fixed-income financial instruments like bonds, treasury bills, securities, etc. The investors that are looking for a stable income and do not want to take too much risk on their investments usually go for debt mutual funds investment. Two of the popular debt fund investments are liquid funds and overnight funds.

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    • Liquid Funds:

    Liquid funds are a type of debt fund that is almost risk-free. The maturity period of liquid funds is between 1 to 90 days and they work as a substitute for bank fixed deposits, with a better interest rate. Investors can invest up to 10 lakh rupees in liquid funds. One of the biggest strengths of liquid funds is that their Net Asset Value is calculated for 365 days, including Sundays, which is not the case with other types of mutual funds investments. 

    • Overnight Funds: 

     As the name suggests, overnight funds are debt funds that have a maturity period of one day. It is safe to say that overnight funds are the most secure mutual funds investment as they invest only in overnight securities. These securities mature in one day so there is almost no risk for capital loss and no credit risk as the entity is not likely to default on the interest payment of the security that is maturing in just one day. 

    Shootih, an online wealth management platform, help users to invest in overnight mutual funds conveniently and park their idle cash in overnight funds to get a good interest rate on investment for such a short time. 

    1. Hybrid Funds:

    Hybrid funds strike a balance between risk and returns. In simple words, hybrid funds allocate the investment in both equity and bonds in a balanced way to lower the risk and maximize returns. Hybrid funds are ideal for investors that are willing to take more risk than conservative investors to grow their wealth and at the same time willing to lower the risk and uncertainty of their investments. 

    1. Money Market Funds:

    There are two types of markets where investors can invest; the stock market and the money market. The money market or cash market is run by the government with the association of banks, financial bodies and corporations. Money market funds offer securities like treasury bills, bonds, dated securities, etc. Upon investing in the money market funds, investors can get regular dividends periodically. 

    • Based on Investment Goals:
    Mutual Funds based on investment goals
    Types of Mutual Funds based on Investment Goals

    The next category of mutual funds is based on investment goals. The investment goals depend on the financial requirements of an organization or individual and the objectives they are looking to achieve through their investment. There are the following categories of mutual funds based on the investment goals:

    1. Growth Funds:

    Growth funds investments are done with the sole purpose of capital appreciation. Growth funds usually allocate the investment towards the stocks of rapidly growing companies. Growth funds are high-risk investment instruments with the potential of providing higher returns. Growth funds are ideal for investors that have enough idle capital to invest in risky instruments to get higher returns. 

    1. Fixed Income Funds:

    Fixed income funds investment is a form of debt funds that invest in low-risk securities like bonds, debentures and money market instruments. These funds are called fixed-income funds as they provide regular cash flow to the investors in the form of interest and dividends. 

    1. Tax Saving Funds:

    If you are a business looking to save tax on your investment then tax-saving funds are your best option. Equity Linked Saving Scheme or ELSS funds are amongst the most popular tax-saving funds available for investors. ELSS funds are known to generate wealth while investing predominantly in stocks. Tax saving funds ensure tax-free returns with a short lock-in period of three years. 

    1. Pension Funds:

    Pension funds are a great way to ensure a stable income after retirement. Pension funds generally include low-risk investment options like government securities to yield a steady return in the longer run. You can not depend completely on savings to get through your life post-retirement. Therefore, investing in pension funds ensures a secure financial future for you and your family. 

    • Based on Risk Appetite:
    Mutual Funds based on risk appetite
    Mutual Funds based on Risk Appetite

    The next category of mutual funds is based on the risk appetite of the investors. Risk appetite refers to the willingness and ability to take risk of losses to get higher returns on mutual funds investment. There are three types of mutual funds based on the risk appetite of investors:

    1. Low-Risk Funds:

    As the name suggests, low-risk funds are suitable for investors that do not want to take too much risk while investing in mutual funds. It’s often during the case of an unstable market that businesses prefer to invest in low-risk funds. Low-risk funds usually include a variety of debt funds and government securities that yield an interest rate between 6 to 8 per cent. 

    1. Medium-Risk Funds:

    Medium risk funds are moderately risky but provide better returns than low-risk funds. The reason is that medium-risk funds invest in a balanced proportion of both equity and debt which allow investors to get better returns while ensuring slightly lower risk. Some of the examples of medium risk funds are hybrid funds and balanced funds that invest in a predetermined proportion of equity and debts. The average return that investors can expect to receive usually lies between 8 to 12 per cent. 

    1. High-Risk Funds:

    High-risk funds are ideal for investors that are willing to take high risks to maximize their returns. High-risk funds majorly invest in equity-related instruments that yield high returns but are also associated with a higher level of risk. High-risk investments can yield as much as 15 to 20 per cent returns on investment. However, they need constant monitoring and performance review as they are very likely to fall under market volatility. Investors must invest in high-risk investments for a longer period, for about 5 to 10 years to enjoy the maximum returns. 

    So these are all the major mutual fund categories that you need to know and understand to become a smart investor. Mutual funds investment is an effective investment tool for businesses and corporates. However, unless you clearly understand the risk associated with mutual funds investment, it is going to be difficult to realise the capital growth you are seeking. 

    We believe that knowledge is power, therefore, with this blog, we aim at helping businesses to embark upon their mutual fund investment journey with all the essential information they need. 

    And the best part is, this isn’t the only way through which we can help the businesses to fulfil their financial goals. Shootih is the best mutual fund investment platform, carefully curated to address the unique investment needs of businesses and corporates.

    At Shootih, we aim to make mutual fund investments online, accessible, and cost-effective for businesses. When you decide to invest in mutual funds with Shootih, you get various perks like personalized AI-based recommendations for effective investment, timely notifications, options to diversify your portfolio, park your idle cash in short and overnight funds, and a lot more. 

    Intrigued to learn how Shootih can help you? Book a demo video to explore Shootih’s features.

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    • View aggregated cash flow across multiple business accounts.
    • See all the available investment options.
    • Easily invest in Mutual Funds.


      In a nutshell,

      1. There are different types of mutual funds available based on structure, asset class, investment goals and risk appetite. It is important to understand each of these types before investing.
      2. Mutual funds are broadly classified into open-ended funds, closed-ended funds and interval funds based on structure.
      3. Mutual funds are divided into equity funds, debt funds, hybrid funds and money market funds based on the asset class.
      4. Debt funds are further classified into liquid and overnight funds. Overnight funds are the best choice to park your idle cash for weekends and holidays and earn fair returns.
      5. Mutual funds are divided into growth funds, fixed-income funds, tax-saving funds and pension funds based on investment goals.
      6. Mutual funds are divided into low risk, medium-risk and high-risk based on risk appetite.
      7. Shootih is the best mutual fund investment platform for businesses that offers access to different asset classes best suited for corporate investments.
      8. Shootih also provides you with an aggregated view of your business transactions on the same platform. Hence, enabling you to track, manage and grow your wealth through a single platform.

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