What are various types of mutual funds in India?

Types of mutual funds in IndiaWhat are various types of mutual funds in India?

In last 2 months there were several questions from readers saying they are new to mutual funds and they invest in such schemes. However, they are not aware what are different types of mutual funds available in India to invest. If you are a new investor in mutual funds and want to know the available types of mutual funds, this article is for you. If you are already investing, you would know which mutual funds suits you better.

Also Read: 10 Best Mutual funds where I am investing?

What are mutual funds?

Mutual fund schemes pool money from investors and invest in various stocks, securities and bonds depending on the investment objectives of the schemes. The entity which does this is called Mutual fund House. There are various mutual fund houses like HDFC Mutual fund, ICICI Mutual fund, Birla Mutual funds, Tata Mutual funds, Quantum mutual fund etc. These mutual fund houses float various mutual fund schemes. However, each scheme would have its own investment objective. Hence it is important for you to understand the various types of mutual funds in India and who should invest in such schemes.

Also Read: 

a) Types of mutual funds based on maturity

There are two kinds of mutual funds which an investor can invest based on maturity.

i) Open ended Schemes: These are mutual fund schemes which are open for subscription at any time during the year. Means you can purchase them on a daily basis based on their Net Asset Value (NAV) which is determined by mutual fund houses. There is no maturity date for such mutual fund schemes. These would continue to invest in the stock market, securities, etc. based on investment objectives. An investor can exit any time from such schemes by redeeming the mutual fund units. Based on NAV and exit terms, the redemption amount is paid to the investor.

ii) Close ended schemes: Close ended schemes are those where the maturity date is fixed. Generally there are two types of mutual funds in close end schemes.

  • Fixed Maturity Plans: These are mutual fund schemes where the maturity date is fixed and they cannot be redeemed during the period. However, as an alternate route, one can find a buyer in stock exchange and sell those units to them.
  • Capital protection plans: As the name suggests, these mutual fund schemes aim to do capital protection. Means their objective is capital protection and not taking much risk. Generally the returns are low in such MF schemes.

b) Types of mutual funds based on investment goals

There are investors whose investment goals are different. Some think they need regular income, but something that they want to grow their money over a period of time.

  • Growth option in mutual funds: Mutual fund schemes that aim to provide growth for the investment in the long term are growth mutual funds. If you are young and started earning in your career, this is the best way to invest. Here, such mutual fund schemes keep earning returns, however, they would be paid only during redemption or at maturity. If you want to invest money for 10 or 15 years, growth mutual funds can grow your money like anything. Do you know that Rs 1,000 per month SIP can  make you Crorepathi in 15 years if you go thru growth option in mutual funds?
  • Dividend option in mutual funds: These schemes aim to provide income by way of dividends. Since dividends received from mutual funds are not taxable, this can be treated as one of the best ways to have tax free income. This is suitable for those who want to enjoy returns every year instead of enjoying at maturity.

Also Read: What are the pros and cons in Growth or divident option in mutual funds?

c) Types of mutual funds based on investment objectives

Now, I am coming to the main point. Though above gives a theme for you, below are real and various kinds of mutual funds where you need to think and invest. All these funds would have growth and dividend options. Also close ended mutual funds would be under Debt mutual funds segment which are indicated below.

1) Index Mutual funds: As the name indicates, mutual fund schemes that invests in Index (Sensex, Nifty, Banking Nifty, etc.) and would perform in line with the index are index mutual funds. However, MF houses would not be researching any particular stock here. They  blindly invest in Index stocks. Hence returns are limited.

Who can invest: If you  believe that markets are expected to go new highs in the coming years, this is one of the options to invest in mutual funds. This is for high risk appetite individuals. In the last 4 out of 5 years, the SENSEX has not raised much. SENSEX raised only in the last 1 year. Similarly, investors enjoyed returns only this year. Hence, one should consider such facts before investing in such funds.

2) Equity mutual funds: This is one of my favorite mutual funds. Equity mutual fund schemes invests more than 65% of its portfolio in equity related stocks and instruments and balance in debt securities and bonds. Such schemes would research and invest in a variety of stocks depending on investment objectives. There could be large cap funds, mid-cap/small-cap funds, sector based funds etc.

Who can invest: If you are young investor or married and have kids and looking to invest for a period of 10 to 15 years, these are the best schemes to invest. These are high risk to medium risk mutual funds. Annualised returns are expected between 12% to 18%, depending on the period and schemes chosen by you. You don’t need any separate investment plan for your kid either for education or for their marriage. If you invest in best mutual funds, you would be the winner. 

3) Balanced mutual funds: These are a kind of mutual fund schemes where it invests up to 65% in equity and remaining in debt securities. The advantage with these schemes is they can reduce stock exposure quickly and invest the majority in debt securities depending on market conditions. These are some what medium risk mutual funds.

Who can invest: Investors with a medium risk appetite, but expecting to get good annualized returns of 10% to 15% in long run of 8 to 10 years can invest in such schemes. Investors can also invest in the medium term of 3 to 5 years. Some of the top funds in this category are HDFC Prudence Fund, ICICI Balanced Fund and HDFC Balanced fund.

4) ELSS Mutual funds: If you are looking for tax saving in mutual funds, along with good returns, you should opt for ELSS (Equity linked Saving Schemes) Mutual funds.

Who can invest: ELSS funds provide higher returns along with tax savings u/c 80C up to a maximum of Rs 1 Lakh. Lock-in period for such funds are 3 years. All other tax saving options have 5+ years of lock-in period. Hence this is the best way to invest for tax saving purpose. These are for medium risk appetite investors.

Also Read: What are the top ELSS-Tax Saving Mutual funds to invest?

5) Debt funds: All the funds indicated above carry some risk as they invest in stock markets based on their investment objective. However, if you are looking for low risk mutual funds, but want returns better than Bank FD, you can consider debt funds. Debt funds invests in debt related securities like commercial papers, Govt. Securities, bonds, etc.

Who can invest:  These funds are for low risk appetite investor. You can invest for 2 to 5 year time frame to get benefit out of these funds. The annualized returns would be between 8% to 11% which are better than bank FD Schemes.

6) Liquid funds: I had some surplus funds where I got variable pay from my company. However, I want to utilize such funds for any purpose in the short term of 3 to 6 months. If I deposit in a bank FD scheme, it would give only 2% return (For short term, 6% interest rate would give me 2% for 4 months). However, I have chosen liquid funds for parking short term money. I got returns of 3% in the short term of 4 month period.

Who can invest: If you have surplus money and want to invest for short term of 1 month to 6 month period, but do not know when you need it, this is the best place to invest. You can expect good returns from this compared to bank FD schemes. Alternatively, you can choose ultra short term mutual funds which have similar objectives.

Quicky summary by way of chart

Types of mutual funds in India-Chart

Readers, what type of mutual funds you are investing?

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Types of mutual funds in India


  • rajender yadav

    hi sir
    i m new in mutul fund i m planing to invest my 2000 (1000, 500, 500) in difrent mutul fund to 5 to 10 years for good return pls tell me good mutul fund to invest
    i m midum risk tekar
    thank you

    • Since you are new to investment, my suggestion is to invest in balanced mutual funds to start with. 1) Invest in ICICI Balanced fund and HDFC Balanced fund. Keep some amount into recurring deposits also. 2) Once you are familar on how mutual funds operate, you can invest in large cap funds and diversified mutual funds. 3) If you can take some risk, you can invest in top 5 mid cap and small cap funds which I have recommended. But note that you should hold them for 8 to 10 years to get good returns. You can keep tracking every month on how your funds are progressing.

  • nitesh

    Thank you very much sir,

    This article is very useful for all. I want to invest in mutual fund.

  • Ritu Sharma

    Hello. I read many of your articles.
    I have a query, I am 22 yrs old and I earn around 20k. I am looking for good returns in long term but with moderate risk. My Parents don’t really like mutual funds as they invested in MetLife mutual funds and suffered heavy losses. Which type of mutual funds/other scheme would be beneficial for me?

    Thank you

  • Kishore

    Hi Suresh,

    What is the difference between Dividend and Growth in Mutual funds? do we get any difference payout ?

    Thank you


    Hi Suresh,

    First thanks for your blog which is really very informative and helpful for all specially new investor…

    I am 32, get 44K salary pm, My expenses 15K pm. i have a LIC of 16371/-(Jeevan Anand) pa, Invested NSC of 15K pa & PPF of 10K pm, Please suggest my current investment is a good???

    Now planning to invest in Mutual Funds for 3 reasons. Child Education, Child Marriage & Retirement.

    My daughter age below 1 year. All these investment will be for 25 years.I want to invest in 35% in Mid & Smaller cap Fund, 25% in Large cap Fund, 20% in Diversified Fund & 20% in Balanced  Fund.

    It's OK or Can you suggest how to diversify the investment by selecting minimal mutual funds based on my investment appetite…

     Following are the funds that I selected. Can you please suggest me whether its a good investment for a long term or do i need to change in any of these funds/Remove them from portfolio???

    Mid & Smaller Cap Funds:-  (35%)

    1. HDFC MidCap Opportunities (G)- 1.5 K

    2. Franklin (I) Smaller Cos (G)- 1K

    3. SBI Magnum Midcap Fund (G)-1K

    Large cap Fund(25%)

    1. ICICI Pru Focused Bluechip Eqty (G)- 1K

    2. HDFC Top 200 Fund (G)- 1 K

    3. UTI Opportunities Fund (G)- 0.5K

    Diversified Fund(20%)

    1. Reliance Equity Opportunities – RP (G)- 1K

    2. UTI MNC Fund (G)- 1K

    Balanced  Fund(20%)

    1.  HDFC Prudence Fund (D)-1K

    2. ICICI Prudential Balanced Fund (G)-1K

    Warm Regards,

    Pankaj Kumar


    • Good to see that you created best portfolio considering large cap, mid cap and balanced funds. Keep adding money / increase SIP going forward in large cap and mid-cap segment as you ar still 32, you can create good wealth in next 10-20 years


        Thanks for your valuable suggestion…
        Please suggest, Am i continue invest in current investment plan (PPF, NSC & LIC)??? And also suggest in large caps fund & Diversified fund which fund i am priority given for investment & which fund will be better result shown in long term goal.

        Thanks in advance.

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