What is Mutual Fund & Types of Mutual Funds and Sub-Categories?

Posted On Thursday, Jan 23, 2020


A mutual fund, as the name suggests, is a shared fund that pools money from multiple investors and invests the collected corpus in shares of listed companies, government bonds, corporate bonds, short-term money-market instruments, other securities or assets, or a combination of these investments.

When you buy into a mutual fund, you pool your money along with other investors. As an investor in a respective scheme, you get units of the fund. And as an investor, you share the profits or losses of a respective mutual fund scheme in proportion to your investment in it.

Mutual fund houses (also known as Asset Management Companies) normally offer a number of schemes with different investment objectives. The broad objective of a mutual fund could be capital appreciation and/or income generation, depending on the type and the investment mandate of the scheme.

There are five categories of mutual funds –– equity-oriented, debt-oriented, hybrid, solution-oriented, and other schemes (index funds and fund of fund schemes). And each of these caters to a set of investment objectives or needs.

Moreover, a mutual fund could be open-ended or close-ended.

Open-ended funds are available for subscription throughout the year – even after their NFO (New Fund Offer) period. As an investor, you, have the flexibility to buy or sell units of these funds at a price linked to the fund's Net Asset Value (NAV).

On the other hand, close-ended funds are available for subscription only during a specified period, i.e. when they arrive as new fund offer. Thereafter, as an investor, you can buy or sell the units of a close-ended only on a recognised stock exchange (secondary market) as they are listed. These funds are ‘close-ended’ for a particular period of time, e.g. 3 years, 5 years, 10 years, etc. After this period ends, the mutual fund house decides to redeem, i.e. pay/ transfer into the account of the investors, or to convert the respective close-ended scheme into an open-ended one.

Thus, selecting a suitable type of mutual fund is crucial in the path of wealth creation. Let us understand the various types of mutual funds and their sub-categories in detail in the next chapter…

The capital market regulator, the Securities and Exchange Board of India (SEBI) has attempted to categorise and rationalise mutual fund schemes into five broad categories:

• Equity Schemes;
• Debt Schemes;
• Hybrid Schemes;
• Solution Oriented Schemes; and
• Other Schemes

Disclaimer, Statutory Details & Risk Factors:

The views expressed here in this article / video are for general information and reading purpose only and do not constitute any guidelines and recommendations on any course of action to be followed by the reader. Quantum AMC / Quantum Mutual Fund is not guaranteeing / offering / communicating any indicative yield on investments made in the scheme(s). The views are not meant to serve as a professional guide / investment advice / intended to be an offer or solicitation for the purchase or sale of any financial product or instrument or mutual fund units for the reader. The article has been prepared on the basis of publicly available information, internally developed data and other sources believed to be reliable. Whilst no action has been solicited based upon the information provided herein, due care has been taken to ensure that the facts are accurate and views given are fair and reasonable as on date. Readers of this article should rely on information/data arising out of their own investigations and advised to seek independent professional advice and arrive at an informed decision before making any investments.

Mutual fund investments are subject to market risks read all scheme related documents carefully.

Please visit – www.QuantumMF.com to read scheme specific risk factors. Investors in the Scheme(s) are not being offered a guaranteed or assured rate of return and there can be no assurance that the schemes objective will be achieved and the NAV of the scheme(s) may go up and down depending upon the factors and forces affecting securities market. Investment in mutual fund units involves investment risk such as trading volumes, settlement risk, liquidity risk, default risk including possible loss of capital. Past performance of the sponsor / AMC / Mutual Fund does not indicate the future performance of the Scheme(s). Statutory Details: Quantum Mutual Fund (the Fund) has been constituted as a Trust under the Indian Trusts Act, 1882. Sponsor: Quantum Advisors Private Limited. (liability of Sponsor limited to Rs. 1,00,000/-) Trustee: Quantum Trustee Company Private Limited. Investment Manager: Quantum Asset Management Company Private Limited. The Sponsor, Trustee and Investment Manager are incorporated under the Companies Act, 1956.

Above article is authored by Quantum.

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