Various Types of Mutual Funds Available in India

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This article is a detailed guide on the various types of mutual funds that you can invest in. We shall delve into the types of mutual funds categorised by asset class, scheme structure, investment objective, and risk exposure.

Investing in the securities market in India is an appealing prospect. There is a wide array of investment options you can choose from, depending on your investment goals and risk appetite. If you are looking for an investment avenue managed by experts, a mutual fund may be the ideal choice. Mutual funds pool funds from various investors and invest them into various sectors or asset classes (or both). 

In this article, we shall discuss different types of mutual funds in India categorised by

  • Scheme structure 
  • Asset class 
  • Investment objective 
  • Risk exposure 

Different types of mutual funds in India categorised by scheme structure

To begin with, let us discuss the three types of mutual funds in India based on the scheme's structure. 

  • Open-ended mutual funds: This type of mutual funds can be redeemed whenever required. Owing to the high degree of liquidity they offer, open-ended funds are extremely popular. 
  • Close-ended mutual funds: Investors can subscribe to these funds during the fund's New Fund Offer period or through the stock market should such funds get listed post the NFO. This type of funds has a predetermined maturity date, with an option for repurchase by the fund house at periodic intervals. 
  • Interval funds: These are close-ended funds which can be redeemed at specific intervals through a repurchase by the fund house. 

Types of mutual funds in India categorised by asset class

On the basis of the asset class they invest in, mutual funds are classified as follows:

  • Equity mutual funds: Mutual funds that invest at least 65% of their corpus into equity stocks are categorised as equity mutual funds. This type of mutual funds is characterised by high risk and high return potential. 
  • Debt mutual funds: This type of mutual funds invest in debt securities which carry limited risk and a fixed income, primarily debentures, government bonds, and credible corporate bonds. 
  • Hybrid funds: Valued for their potential of diversification of portfolio, hybrid funds invest in a combination of debt and equity instruments. 

Types of mutual funds in India categorised by investment objectives

Based on your investment objective, mutual funds can be classified as follows:

  • Equity Linked Savings Scheme: This type of mutual fund allocates 80% or more of its corpus to equity stocks. Investments in ELSS are eligible for tax deduction to the tune of Rs. 1,50,000 (under Section 80C of the Income Tax Act, 1961). 
  • Growth fund: Mutual funds that invest in entities with high growth prospects are termed as growth funds. Owing to the potential for high returns, the corresponding risk for such funds is also high. 
  • Money market fund: This type of mutual funds invest in fixed-income money market securities. The salient features of a money market fund are low risk, short tenure, and fixed returns. 
  • Liquid fund: Investments in this type of mutual fund are allocated to highly liquid debt instruments with a maturity lower than 90 days. 
  • Pension fund: Designed specifically for people looking to plan their retirement, pension funds are aimed at building a substantial corpus over a period of time through investments in diversified asset classes. Such funds usually have a long lock-in period. 
  • Capital protection fund: This type of mutual fund invests in a combination of debt and equity instruments, with a higher weightage assigned to the former. The primary aim of a capital protection fund is to protect the principal amount invested by an investor. 
  • Income fund: Aimed at ensuring capital appreciation and moderate to high returns for investors, income funds invest in highly credible debt instruments, for instance, government bonds and corporate bonds. 
  • Gold funds: As its name suggests, this type of mutual fund invests in gold through a Gold Exchange Traded Fund (ETF). By opting for a gold fund, you can invest in the precious metal without having to physically purchase and store it. 
  • Fixed maturity fund: Available only through a New Fund Offer, fixed maturity funds are one of the types of mutual funds in India. These low-risk funds invest in debt securities carrying the same maturity as that of the fund. 
  • Fund of funds: This type of mutual fund invests in other mutual funds, thereby enabling investors to diversify their investment portfolio and moderate their overall risk exposure. 

Different types of mutual funds categorised by degree of risk 

There are different types of mutual funds, depending on how much risk they entail, namely:

  • Low risk funds: Such mutual funds invest in extremely credible fixed-income securities which carry minimal risk and moderate returns, for instance government bonds and bonds of highly rated companies. 
  • High risk funds: This type of mutual funds invests in high risk securities such as equity stocks and debt instruments carrying a high degree of risk. 
  • Medium risk funds: Characterised by a balance between risk and return, medium risk funds invest in securities carrying a moderate degree of risk. Such funds usually invest in various asset classes to reduce the overall risk exposure of investors. 

To sum it up 

Depending on your investment objectives, investing timeline, preferred degree of risk exposure, and desired liquidity, you can choose the ideal mutual funds to add to your investment portfolio. You can invest in different types of mutual funds in India online and save time and effort in the process.

Disclaimer: Investments in the securities market are subject to market risk, read all related documents carefully before investing.

This content is for educational purposes only. Securities quoted are exemplary and not recommendatory.

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