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Basics of Investing - Types of Mutual Funds
April 17, 2013


Author : iFast Content Team



Types of Funds
Types of Funds

Basics of Investing

Types of Funds

Global funds: These funds invest in stocks listed on exchanges abroad. For instance, Franklin Asian Equity is a fund that invests in stocks listed in India and stocks across Asia (ex Japan). Alternatively, it could also be a fund that buys the units of a fund listed abroad. For instance, DWS Global Agribusiness Offshore Fund invests in units of its underlying global fund - DWS Invest Global Agribusiness Fund.

Thematic funds: These funds invest in the sectors of a theme. For instance, if the theme is Infrastructure, then the fund will invest in various sectors that form part of the broad Infrastructure theme such as Construction, Real Estate, Engineering, Cement and Power.

ELSS: Equity Linked Savings Scheme is a diversified equity fund that offers investors a tax rebate under Section 80C of the Income Tax Act. Investments in such funds require a minimum lock-in period of 3 years to be eligible for the tax benefit.

Sector funds: These are funds that invest only in the stocks of a particular sector such as Banking, Techonology, Pharma or FMCG. These funds can be very volatile because their fortunes depend only on one single sector.

Diversified funds: Equity diversified funds are those that invest in the stocks of various companies across different sectors. Depending on the investment mandate of the funds, they are classified as large cap, multi cap, and mid-and-small cap. They are also classified as dividend yield funds, contra funds or value funds depending on their positioning and investment mandate.

Gilt funds: Gilt funds can be either short-, medium-, or long-term depending on the maturity of the paper, which can stretch up to 30 years. These funds invest in government securities (G-Secs) and hence carry no default risk as they are backed by the government (sovereign).

Income funds: These are funds that invest in debt instruments across the entire spectrum and can vary their average maturity depending on the objective of the scheme.

Fixed Maturity Plans: FMP is a product that has a fixed tenure and invests in debt instruments like corporate bonds and Certificates of Deposit (CD). The tenure could vary from a few months to 3 years. They are closed ended schemes that are listed on the stock exchange for premature withdrawal.

Dynamic bond funds: These funds invest in debt securities of any maturity across the yield curve. The average maturity of the funds vary depending on the instruments invested in. This call is taken by the fund manager on where he thinks rates are headed.

Liquid funds: These funds are attractive avenues for parking cash for very short periods of time and are an alternative to a savings account. They invest in money market instruments whose maturity does not exceed 91 days.

Short-term funds: The average maturity of these funds is between 1 and 2 years. Investors can park their cash here for periods within that frame.

Monthly Income Plans: MIPs are hybrid funds that invest between 15% and 25% in equity, the balance being in debt securities. Though income from these funds is not guaranteed, they attempt to distribute regular dividends.

Ultra short-term funds: The average maturity of these funds is less than 1 year. Investors can park their cash here if they are not keen on a very short time frame (liquid funds) or a slightly longer one (short-term funds).

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