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Types of Schemes in Mutual Fund

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There are different types of schemes in mutual fund. They will diversify your investment portfolio. They are customized according to investors’ needs and risk appetite. Investing in such schemes can provide a high return on investment. In this article, we are going to discuss the types of schemes in mutual fund available in India.

Topic in this Article

Types of schemes of mutual fund

Schemes according to Organisation Structure
Open-ended funds
Close-ended funds

Schemes according to Investment goals
Growth or equity funds
Income or Debt funds
Liquid funds
Hybrid funds
Gilt Fund

Types of schemes of mutual fund

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Types of Schemes in Mutual Fund

There are many types of mutual fund in India according to their structure, category, etc.

Schemes according to Organisation Structure

Open-ended funds

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An open-ended fund can be purchased and sold at any time. This has high liquidity. Investors can quit at any time. It doesn’t have a fixed maturity period. Investors buy units at daily stated Net Asset Value (NAV)-related prices.

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Close-ended funds

In a closed-ended mutual fund scheme, your money has a fixed locked period of time. Close-ended funds are available only during new fund offers. It has a fixed maturity period of 5 to 6 years. Investors can not redeem it before the maturity period. Investors can buy and sell their units on stock markets. Changes in large capital flows don’t have an influence on closed-ended schemes.

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Schemes according to Investment goals

Growth or equity funds

An equity or growth fund is a type of scheme in mutual fund that primarily invests in business shares/stocks. They are either Active or Passive. It is further divided into subtypes according to market capitalization. Such as Large Cap, Mid Cap, Small, or Micro Cap Funds. It requires long-term investment. Equity funds have a high level of risk.

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 Income or Debt funds

In debt or income funds, investors invest in investment securities such as bonds, debentures, and government bills for a set period of time. As compared to equity, a debt fund generates a consistent but low income.  Monthly income plans (MIPs), short-term plans (STPs), liquid funds, and fixed maturity plans are all investment options in debt funds (FMPs). It also includes funds that invest in short and medium and long-term bonds.

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Liquid funds

Liquid funds are also called overnight or money market mutual funds. In this funds invest in short-term debt securities. Such as bonds, inter-bank call money, and government securities.  The funds invest money in money market instruments for tenor time 91 days. The return depends on the short-term interest rate of the market.  It is the best option for investors with a low-risk tolerance. It has a low liquidity risk. because it is not dependent on secondary markets to liquidate investments.

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 Hybrid funds

A hybrid fund is a combination of equity and debt that covers the scheme’s investment goals. It has a higher risk than debt funds but a lower risk than equity funds. Thus, they are also called marginal equity funds. They provide higher returns than debt funds. Usually, low-risk investors prefer hybrid fund schemes.

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Gilt Fund

Gilt funds invest in only government bonds and fixed-income securities. It has a maturity time of three to five years. They offer reasonable returns with low risk. This fund does not have default risk. But, changes in interest rates affect gilt Funds. These funds can assist you in producing profits over the medium to long term.

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Investors have to diversify an investment portfolio. Thus they need to choose an investment option based on their financial priorities, risk appetite. These are some types of schemes in mutual funds that will help them reach their portfolio goals.

 

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