Types of Mutual Funds
1 Close Ended Funds Close
ended funds are funds which have definite period or target amount. Once
the period is over and or the target is reached, the door is closed for the
investors. They cannot purchase any more units. These units are publicly traded
through stock exchange and generally, there is no repurchase facility by the
fund. The main objective of this fund is capital appreciation. Thus after the
expiry of the fixed period, the entire corpus is disinvested and the proceeds
are distributed to the various unit holders in proportion to their holding.
Thus the fund ceases to be a fund, after the final distribution. E.g. UTI
Master Share, 1986.
2 Open Ended Funds Open
ended funds are those which have no fixed maturity periods. Open ended
scheme consists of mutual funds which sell the units to the public. These
mutual funds can also repurchase the units. Initial Public Offer (IPO) is open
for a period of 30 days and then reopens as an open-ended scheme after a period
not exceeding 30 days from the date of closure of the IPO. Investors can buy or
repurchase units at net asset value or net value related prices, as decided by
the mutual fund. Example: Unit Trust of India‗s Growth sector funds.
Classification of Mutual Funds
On The Basis Of Yield and Investment
Income Fund Income
funds are those which generate regular income to the members on a periodical
basis. It concentrates more on the distribution of regular income and it also
sees that the average return is higher than that of the income from bank
deposits. a. The investor is assured of regular income at periodical intervals
b. The main objective is to declare regular dividends and not capital
appreciation. c. The investment pattern is towards high and fixed income yielding
securities d. It is concerned with short run gains only.
Fund Growth are those which concentrate mainly on long
term gains i.e., capital appreciation. Hence they are termed as “Nest
investmentsEggs”. a. It aims at meeting the investors need for
capital appreciation. b. The investor‗s strategy conforms to investing the
funds on equities with high growth potential. c. The Investment tries to get
capital appreciation by taking much risks and investing on risk bearing
equities and high growth equity shares. d. The fund declares dividends. e. It
is best suited to salaried and business people.
Balanced Fund It
is a balance between income and growth fund. This is called as Income cum
growth. It aims at distributing regular income as well as capital appreciation.
Thus the investments are made in high growth equity shares and also the fixed
income earning securities.
Specialized Funds These
are special funds to meet specific needs of specific categories of people
like pensioners, widows etc.
Money Market Mutual
Funds The funds are invested in money market instruments.
These funds basically have all the features of open ended funds but they
invest in highly liquid and safe securities like commercial paper, banker‘s
acceptances, and certificates of deposits treasury bills. These funds are
called money funds in the U.S.A. The RBI has fixed the minimum amount of
investment as Rs.1 Lakh; it is out of the reach of many small investors.
However, the private sector funds have been permitted to deal in money market
mutual funds. It is best suited to institutional investors like banks and other
Taxation Funds It
is a fund which offers tax rebated to the investors either in the domestic or
foreign capital market. It is suitable to salaried people who want to enjoy
tax rebates particularly during the month of February and March. An investor is
entitled to get 20% rebated in Income Tax for investments made under this fund
subject to a maximum investment of Rs.10,000 per annum. E.g. Tax Saving Magnum
of SBI Capital Market Limited.
Leveraged Funds: Also
called as borrowed funds as they are used primarily to increase the size
of the value of portfolio of a mutual fund. When the value increases, the
earning capacity of the fund also increases.
Dual Funds: It
is a fund which gives a single investment opportunity for two different types
of investors. It sells income shares and capital. Those investors who
seek current investment income can purchase incomes shares. The capital shares
receive all the capital gains earned on those shares and they are not entitled
to receive any dividend of any type.
Index Fund: It
is a fund based the some broad market index. This is done by holding securities
in the same proportion as the index itself. The value of these index linked
funds will automatically go up whenever the market index goes up and vice
Bond Funds: The
funds have portfolios consisting mainly of fixed income securities like bonds.
The main thrust is income rather than capital gains.
Funds: These funds are capital gains oriented
and thus the thrust area of these funds is capital gains. Hence,
these funds are generally invested in speculative stocks They may also use
specialized investment techniques like short term trading, option writing etc.,
Off shore Mutual Funds:
funds are meant for nonresident investors. These funds facilitate
flow of funds across different countries, with free and efficient movement of
capital for investment and repatriation.
Property Fund: These
funds are real estate mutual funds. Its investment also includes shares/bonds
of companies involved in real estate and mortgage backed companies.
viii. Fund of Funds: It is a fund that invests in other mutual fund schemes. The concept in prevalent in abroad.