Mutual funds in India are available in many forms such as equity, debt, hybrid, index, sectoral, and more. For new investors, these labels can often feel confusing. Even mutual fund names may look long and complex, containing terms like large cap, index, direct, or growth.
- How to Read and Understand Mutual Fund Names
- Types of Mutual Fund Schemes
- Scheme Classification by Organisation Structure
- Open Ended Schemes
- Close Ended Schemes
- Interval Schemes
- Scheme Classification by Portfolio Management
- Active Funds
- Passive Funds
- Active vs Passive Funds
- Classification by Investment Objectives
- Growth Funds
- Liquid, Overnight and Money Market Funds
- Classification by Investment Portfolio
- Balanced Funds
- Gilt Funds
- Index Funds
- Understanding Mutual Fund Plan Options
- Flexi Cap Fund
- Direct Plan
- Growth Option
- Bluechip Fund
- Taxation: The Numbers That Matter
- Conclusion
- FAQs
The easiest way to understand these terms is through mutual fund scheme classification and by learning how mutual fund names are structured. Most fund names clearly indicate the fund’s asset class, investment strategy, and plan type.
Mutual fund schemes are typically grouped based on structure, asset class, management style, and investment objective. Some funds focus on long term capital appreciation, while others prioritise regular income or liquidity. Certain schemes track market indices, while others rely on active management by professional fund managers.
This guide explains mutual fund scheme classification and types of mutual funds in India, while also helping investors understand how to read and interpret mutual fund names.
How to Read and Understand Mutual Fund Names
Mutual fund names often contain several terms that describe the fund’s category, strategy, and payout option. Understanding these terms can help investors quickly identify the type of scheme they are considering.
A typical mutual fund name may include:
| Part of Name | What It Indicates |
|---|---|
| Fund House | Asset management company managing the scheme |
| Fund Category | Equity, Debt, Hybrid, Index |
| Investment Style | Large cap, Flexi cap, Sectoral |
| Plan Type | Direct or Regular |
| Payout Option | Growth or IDCW |
For example:
ABC Nifty 50 Index Fund Direct Growth
This name indicates:
- Fund house: ABC Mutual Fund
- Investment type: Index fund tracking Nifty 50
- Plan type: Direct plan
- Return option: Growth
Once investors learn to interpret these terms, comparing mutual funds becomes much simpler.
(Source: The Economic Times)
Types of Mutual Fund Schemes
Mutual funds are designed to cater to a wide range of financial goals. Because of this, they are classified under several categories based on different factors. The major classifications of mutual fund scheme classification and types of mutual funds in India include:
| Basis of Classification | Types |
|---|---|
| Organisation Structure | Open ended, Close ended, Interval |
| Portfolio Management | Active funds, Passive funds |
| Investment Objective | Growth, Income, Liquidity, Tax saving |
| Underlying Portfolio | Equity, Debt, Hybrid, Money market, Multi asset |
| Thematic / Solution Oriented | Tax saving (ELSS), Arbitrage, Retirement, Children’s Fund |
| Other Categories | Exchange Traded Funds (ETFs), Overseas funds, Fund of funds |
(Source: AMFI, Kotak Mahindra Bank)
Scheme Classification by Organisation Structure
One of the most common ways to understand mutual fund scheme classification and types of mutual funds in India is through organisational structure.
Open Ended Schemes
Open ended mutual funds allow investors to purchase and redeem units on any business day at the prevailing Net Asset Value (NAV).
Net Asset Value (NAV): Net Asset Value (NAV) is the price of one unit of a mutual fund. It is calculated by dividing the total value of the fund’s assets minus liabilities by the total number of units outstanding.
Key features include:
- No fixed maturity period
- Continuous subscription and redemption
- NAV declared daily
- High liquidity for investors
Because of their flexibility, open ended funds are among the most popular mutual fund schemes.
Close Ended Schemes
Close ended schemes operate with a fixed maturity period. Important characteristics include:
- Units are issued during the initial offer period
- Redemption usually happens at maturity
- Units are listed on stock exchanges for trading before maturity
These funds typically have maturities of 5 to 7 years.
Interval Schemes
Interval schemes combine features of both open ended and close ended funds.
Key characteristics:
- Units can be purchased or redeemed during specific transaction periods
- Transaction window must be at least 2 days
- Minimum 15 day gap between two transaction windows
- Units are mandatorily listed on stock exchanges
(Source: AMFI, ICICI Bank)
Scheme Classification by Portfolio Management
Another important part of mutual fund scheme classification and types of mutual funds in India is whether the portfolio is actively or passively managed.
Active Funds
In active mutual funds, professional fund managers take investment decisions based on research and market analysis.
Their responsibilities include:
- Selecting stocks or bonds
- Deciding when to buy, hold, or sell securities
- Managing portfolio risk
Active funds aim to deliver returns higher than their benchmark index, which is known as alpha. The fund’s investment strategy and approach are clearly explained in the Scheme Information Document.
Scheme Information Document (SID): An official document that explains how a mutual fund scheme works. It provides details about the fund’s investment objective, strategy, risks, and costs to help investors make informed decisions.
Passive Funds
Passive funds follow a different strategy. Instead of selecting securities actively, they replicate a specific market index.
Examples include:
- Index funds
- Exchange Traded Funds (ETFs)
The fund manager’s role is limited to replicating the benchmark index while maintaining minimal tracking error.
Active vs Passive Funds
| Feature | Active Funds | Passive Funds |
|---|---|---|
| Portfolio Management | Actively managed by fund managers | Replicates a specific market index |
| Objective | Outperform the benchmark index (Alpha) | Match the benchmark performance (Beta) |
| Cost | Higher expense ratio (typically 1.0% – 2.25%) | Lower expense ratio (typically 0.1% – 0.5%) |
| Suitable for | Investors seeking market-beating returns | Investors preferring low-cost market returns |
(Source: Bajaj Finserv)
Classification by Investment Objectives
Mutual funds also differ based on the financial goal they aim to achieve. Common investment objectives include:
- Capital appreciation
- Capital preservation
- Regular income
- Liquidity
- Tax saving
Mutual funds also offer Growth and Dividend plans that allow investors to customise their investment strategy.
Growth Funds
Growth funds aim to provide long term capital appreciation. These funds primarily invest in equities.
Key characteristics include:
- Suitable for medium to long term investment horizons
- Higher volatility in the short term
- Potential for higher long term returns
Historically, equities have outperformed many traditional asset classes over long periods.
Liquid, Overnight and Money Market Funds
These funds are designed for investors who prioritise liquidity and capital safety.
Key characteristics:
- Invest in money market instruments with maturities up to 1 year
- Provide relatively stable returns
- Suitable for short term parking of funds
Money market instruments include:
- Treasury bills
- Commercial papers
- Certificates of deposit
- Call money and notice money
- Government securities with maturity under one year
(Source: ICICI Bank, AMFI)
Classification by Investment Portfolio
Another layer of mutual fund scheme classification and types of mutual funds in India is based on the assets held in the portfolio.
Asset based classification includes:
| Asset Class | Example Funds |
|---|---|
| Equity | Large cap, Mid cap, Small cap |
| Debt | Income funds, Dynamic bond funds |
| Hybrid | Balanced funds |
| Money Market | Liquid funds |
| Multi Asset | Funds investing in multiple asset classes (Equity, Debt, Gold, etc.) |
The second level of classification depends on the strategy used by the fund manager.
Examples include:
- Infrastructure funds
- Value funds
- Dynamic bond funds
Balanced Funds
Balanced funds invest in both equities and fixed income instruments. Typical allocation ranges between 40 to 60 percent across equity and debt.
Key advantages include:
- Potential for capital growth
- Income generation
- Lower volatility compared to pure equity funds
Gilt Funds
Gilt funds invest exclusively in government securities.
Key features:
- No default risk since government securities are used
- NAV may fluctuate due to interest rate movements
- Suitable for investors seeking relatively secure debt exposure
Index Funds
Index funds replicate the portfolio of a market index such as:
- BSE Sensex
- Nifty 50
These funds invest in securities in the same proportion as the index. Returns move closely with the index, although slight deviations may occur due to tracking error.
(Source: AMFI)
Understanding Mutual Fund Plan Options
Certain terms describe how mutual funds operate or distribute profits.
Flexi Cap Fund
A Flexi cap mutual fund is an equity scheme that invests across large cap, mid cap and small cap companies without fixed allocation limits. This flexibility allows the fund manager to shift investments depending on market opportunities.
Direct Plan
Investments are made directly through the fund house without intermediaries. This reduces expense ratios because distributor commissions are eliminated.
Growth Option
Profits are reinvested within the fund instead of being distributed as dividends. This allows investors to benefit from compounding.
Bluechip Fund
Bluechip or large cap funds invest in the top 100 financially stable companies in the market. These funds are generally considered relatively stable compared to mid cap or small cap funds.
(Source: Edelweiss)
Taxation: The Numbers That Matter
| Asset Type | Holding Period | Tax Treatment |
|---|---|---|
| Equity Funds | > 12 Months (LTCG) | 12.5% on gains above ₹1.25 Lakh |
| Equity Funds | < 12 Months (STCG) | Flat 20% |
| Debt Funds | Any Period | Taxed as per your Income Tax Slab |
| Gold/Hybrid Funds | > 24 Months (LTCG) | 12.5% (No Indexation benefit) |
Note: Hybrid taxation depends on equity allocation (>65%)
(Source: Ujjivan Small Finance Bank)
Conclusion
Mutual fund categories may seem complex, but they follow a logical structure based on objectives, composition, and management style. By understanding these classifications and learning to read fund names, you can quickly identify a scheme’s strategy and return profile. Once familiar with these concepts, you can confidently select the right funds to align with your long-term financial goals.
Disclaimer: Mutual fund investments are subject to market risks. Read all the related documents carefully before investing. This content is purely for information purpose only and in no way is to be considered as an advice or recommendation. The securities are quoted as an example and not as a recommendation. Investors are requested to do their own due diligence before investing.
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