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Ventura Wealth Clients
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The Indian mutual fund industry has emerged as a powerful tool for wealth creation, offering a plethora of investment options to cater to diverse financial goals and risk appetites. But navigating the numerous types of mutual funds in India can be overwhelming for beginners. This blog post serves as a one-stop guide, empowering you to make informed investment decisions by exploring the various categories of mutual funds available in the Indian market.

What are mutual funds?

Mutual funds are essentially collective investment vehicles managed by professional fund managers. Investors pool their money together, and the fund manager then invests this corpus in a basket of securities like stocks, bonds, or money market instruments. The returns generated from these investments are then distributed proportionately to the investors based on their units held in the fund.

Types of mutual funds in India

Mutual funds in India are primarily categorised based on the asset class in which they predominantly invest. Here's a breakdown of the major categories:

  • Equity Funds:

These funds invest primarily in stocks of companies listed on Indian stock exchanges. They offer the potential for high capital appreciation over the long term but are also subject to higher volatility compared to other types of funds. Sub-categories of equity funds include:

 Large-Cap Funds: Invest in stocks of well-established, large companies with a proven track record.

 Mid-Cap Funds: Invest in stocks of medium-sized companies with the potential for high growth.

 Small-Cap Funds: Invest in stocks of smaller companies with the potential for explosive growth but also carry higher risk.

 Sectoral Funds: Focus on a specific industry sector, offering concentrated exposure but also higher risk.

 Thematic Funds: Invest in companies based on a particular theme or trend, like infrastructure or healthcare.

  • Debt Funds:

These funds invest in fixed-income instruments like government bonds, corporate bonds, and treasury bills. They offer investors regular income and are generally considered less volatile than equity funds. Sub-categories of debt funds include:

 Short-Term Debt Funds: Invest in debt instruments with maturities of up to 3 years, offering relatively stable returns.

 Long-Term Debt Funds: Invest in debt instruments with maturities exceeding 3 years, offering potentially higher returns but also greater interest rate risk.

 Liquid Funds: Invest in ultra-short-term debt instruments with maturities of less than 91 days, offering high liquidity and low volatility.

  • Balanced Funds:

These funds attempt to achieve a balance between equity and debt investments, aiming to provide moderate growth with some income generation. The asset allocation between equity and debt can vary depending on the specific fund's objective.

  • Money Market Funds:

These funds invest in highly liquid instruments like treasury bills and commercial papers with maturities of up to one year. They offer investors a safe haven for parking short-term funds and provide a return that is slightly higher than a savings account.

Mutual fund categories based on investment objectives

Mutual funds can also be classified based on their primary investment objective:

  • Growth Funds:

These funds aim to achieve capital appreciation over the long term by investing primarily in equity stocks. They are suitable for investors with a long-term investment horizon and a higher risk tolerance.

  • Income Funds:

These funds prioritise generating regular income for investors by investing in fixed-income instruments like bonds. They are suitable for investors seeking steady income generation and are generally less volatile than growth funds.

  • Tax-Saving Funds (ELSS):

Equity Linked Savings Scheme (ELSS) funds offer tax benefits under Section 80C of the Income Tax Act. They invest primarily in equity stocks and have a mandatory lock-in period of 3 years. These funds are suitable for investors seeking tax benefits along with the potential for capital appreciation.

  • Aggressive Growth Funds:

These funds invest in a concentrated portfolio of high-growth stocks, aiming for maximum capital appreciation. They are suitable for investors with a very high risk tolerance and a long investment horizon.

  • Capital Protection Funds:

These funds aim to protect the invested capital while offering some potential for moderate returns. They typically invest in a combination of debt and equity instruments, with a higher allocation towards debt to ensure capital preservation.

Mutual fund categories based on structure

Mutual funds can be further categorised based on their structure:

  • Open-Ended Funds:

These are the most common types of mutual fund investment in India. Investors can continuously buy or sell units directly from the Asset Management Company (AMC) at the Net Asset Value (NAV) throughout the trading day.

  • Closed-Ended Funds:

These funds have a fixed number of units issued during an initial public offering (IPO).

  • Interval Funds: These are a hybrid between open-ended and closed-ended funds. They offer periodic repurchase windows where investors can redeem their units at NAV from the fund house.

Taxes on mutual funds

Understanding the tax implications of investing in mutual funds is crucial:

  • Equity Oriented Funds: Capital gains from equity funds held for more than 1 year are taxed at 10% without indexation (adjustment for inflation). Short-term capital gains (held for less than 1 year) are taxed at 15%.
  • Debt Oriented Funds: Short-term capital gains from debt funds are taxed at the investor's income tax slab. Long-term capital gains exceeding Rs. 1 lakh from debt funds are taxed at 20% with indexation.

Which mutual fund should you buy?

With a multitude of options available, selecting the right mutual fund requires careful consideration of your individual financial goals and risk tolerance. Here are some key factors to ponder:

  • Investment Horizon: How long do you intend to invest your money? Equity funds are generally suitable for long-term goals (5+ years) as they can weather market fluctuations. Debt funds can be appropriate for shorter timeframes.
  • Risk Tolerance: How comfortable are you with potential losses? Equity funds are inherently more volatile than debt funds. Choose a fund that aligns with your risk appetite.
  • Financial Goals: Are you saving for retirement, a child's education, or a down payment on a house? Matching your investment horizon and risk tolerance to your specific goals is paramount.

Additional considerations

  • Expense Ratio: This is the annual fee charged by the fund house to manage the fund. Lower expense ratios generally translate to higher returns for investors.
  • Fund Performance: Analyse the fund's historical performance compared to its benchmark index. However, past performance doesn't guarantee future results.
  • Fund Manager's Track Record: Research the experience and track record of the fund manager to assess their investment philosophy and expertise.


The Indian mutual fund industry offers a diverse spectrum of investment options to cater to various financial needs. By understanding the different types of mutual funds, their investment objectives, and the factors influencing your choice, you can embark on your investment journey with greater confidence. Remember, consulting with a qualified financial advisor can help you create a personalised investment plan that aligns with your unique financial goals and risk profile. Happy Investing!

Disclaimer: This blog post is for informational purposes only and should not be considered financial advice. Please consult with a qualified financial advisor before making any investment decisions.