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In this policy, the investment risk in the investment portfolio is borne by the policyholder.
Kotak e-Invest
Features
Ref. No. KLI/22-23/E-BB/492
Mutual funds are a type of investment that pools money from many investors to invest in a diversified portfolio managed by experts. They offer a vital pathway for growing your capital. Understanding the different types of mutual funds available is important, as each caters to different risk tolerance and financial goals, empowering you to make strategic choices for sustainable wealth creation.
At its core, a mutual fund pools money from many investors to purchase a diversified collection of stocks, bonds, or other securities, all managed by a professional fund manager. Their significance is offering access to expert management and broad market participation that might be out of reach for individual investors acting alone.
What makes mutual funds particularly stand out is their ability to provide instant diversification, reduce risk, and cater to various financial goals through a single, often affordable, investment. All of it happens under the regulatory oversight of SEBI (Securities and Exchange Board of India).
The types of mutual funds in India are categorized based on several key factors, such as asset class, investor objective, structure, and risk profile. This classification helps investors align their choice of mutual fund with their risk tolerance, investment plans, and financial goals.
The Securities and Exchange Board of India (SEBI) plays an important role in regulating the mutual fund industry in India, primarily to protect the interests of investors and ensure fair practices. SEBI’s guidelines standardize the classification of mutual fund schemes, making it easier for investors to understand what they are investing in, compare options, and make informed choices by ensuring transparency and uniformity.
To bring clarity and consistency, SEBI has broadly categorized mutual funds into five types of schemes. This structured approach helps investors align their investment strategy with funds that clearly define their objectives.
Beyond what they invest in, mutual funds are also grouped by their structure, which dictates how you can buy or sell their units. This classification is significant as it affects liquidity. Here are the three main structural mutual funds types:
These are the most flexible types of mutual funds. You can buy or sell units based on the prevailing Net Asset Value (NAV). Moreover, they do not have a fixed maturity date. This makes them highly liquid, offering great flexibility for investors to enter or exit as per their needs.
These funds have a pre-defined time interval for investing. You can typically buy units only during the New Fund Offer (NFO) period. After the NFO closes, these funds have a fixed maturity period. While they might be listed on stock exchanges for trading, liquidity can be lower compared to open-ended funds. Investors usually get their money back, along with any gains, when the fund matures.
These are a bit of a hybrid. They combine features of both open-ended and closed-ended funds. Interval schemes are open for purchase or redemption only during specific and pre-defined intervals. Between these intervals, they operate like closed-end funds and may be listed on stock exchanges, though liquidity can vary.
One of the most fundamental ways mutual funds are categorized is by the type of assets they primarily invest your money into. This classification tells you if the fund is buying shares of companies (equity), lending money to organizations (debt), or a mix of different asset types. Let us explore the various types of mutual funds based on asset class, along with their common sub-categories:
Equity funds primarily invest in the stock market, buying shares, or equity of various companies. The main goal here is usually long-term capital growth. They are generally considered to have higher growth potential and higher risk compared to other fund types. SEBI has further broken these down:
Various other types of equity funds in India include:
Debt funds invest in fixed-income instruments such as government securities, corporate bonds, treasury bills, and other debt securities. These are essentially loans given to entities. They aim for stable returns and capital preservation and are generally considered less risky than equity funds.
SEBI categorizes them based on the maturity or type of bonds they hold:
Hybrid funds invest in a mix of asset classes, usually equity and debt, and sometimes others such as gold or international equities. They aim to provide a balance of growth, from equities, and stability, from debt. The key hybrid funds options in India are listed below:
These schemes are designed to help investors meet specific long-term life goals and usually come with a mandatory lock-in period to encourage disciplined investing. It can be further divided into two types:
When you invest in a mutual fund scheme, you often get to choose how you would like the fund’s earnings to be handled. This choice determines if you want to reinvest your gains to grow your wealth further or receive a portion of them as periodic payouts. There are primarily two options you can select from the types of mutual fund schemes:
With this option, any profits the mutual fund makes are automatically reinvested back into the scheme. This means you do not receive any regular payouts. Instead, the Net Asset Value (NAV) of your fund units appreciates over time, leading to wealth accumulation through the power of compounding. This is generally preferred by investors aiming for long-term capital growth.
Under this option, the fund may periodically distribute a portion of its profits to the investors as ‘dividends’. When a dividend is paid out, the NAV of the fund reduces by the amount of the dividend per unit. This option is suitable for investors seeking regular income, though it is important to understand that these payouts are not guaranteed and affect the NAV.
Beyond structure and asset class, mutual funds can also be broadly understood through their risk profile and any specialized investment strategy they employ. The risk level generally correlates with the potential returns; higher risk often implies the possibility of higher returns, and vice-versa. The classification of mutual funds as per the risk level is as follows:
Mutual funds can also be categorized based on when you can invest or withdraw your money, which is directly related to their maturity period. Here are the mutual funds schemes based on the maturity period:
These schemes do not have a fixed maturity period. Investors can buy or sell units at any time at the. This means your investment is not locked in for any specific duration, offering high liquidity.
These schemes come with a pre-defined maturity date. You can invest in them only during the initial launch period. Once the launch period closes, further investments are not allowed, and redemption is usually possible only when the scheme matures.
Interval schemes have characteristics of both open-ended and close-ended schemes. They are open for subscription and redemption only during pre-determined intervals. Between these intervals, your investment is locked in, just like close-ended schemes.
Solution-Oriented Schemes are a specific category of mutual funds designed with a clear end-goal in mind, often catering to significant long-term financial milestones. Unlike funds that focus purely on asset class or risk, these schemes are structured to help investors systematically build a corpus for a particular life objective. There are two primary types under this classification:
These funds are specifically tailored to help individuals accumulate a substantial sum for their post-retirement life. The investment strategy usually balances growth with capital preservation. They have a mandatory lock-in period of 5 years, or until the investor reaches retirement age.
It is designed to meet the future financial needs of a child, such as expenses for higher education, marriage, or other significant life events. Similar to retirement funds, children’s funds also have a lock-in period of at least 5 years, or until the child attains the age of majority (18 years), whichever is earlier.
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Sectoral funds invest in companies of a specific industry, such as IT, banking, etc., while thematic funds invest in companies aligned with a particular investment idea, such as infrastructure, ESG etc.
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Open-ended funds allow investors to buy and sell units directly from the fund house. Close-ended funds have a fixed maturity, and units are bought during an NFO and then usually traded on stock exchanges, offering limited liquidity.
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ELSS are equity-oriented mutual funds that offer tax deductions up to ₹1.5 lakh under Section 80C of the Income Tax Act. They come with a mandatory lock-in period of 3 years.
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A debt mutual fund invests in fixed-income instruments such as government securities, corporate bonds, and treasury bills. They aim to provide stable income and capital preservation, generally considered less risky than equity funds.
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A hybrid mutual fund invests in a mix of asset classes, usually equities and debt, and sometimes others such as gold. They aim to balance risk and return by combining the growth potential of equities with the stability of debt.
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Multi-cap funds must invest at least 25% each in large-cap, mid-cap, and small-cap stocks. Flexi-cap funds also invest across market caps but have the freedom to dynamically allocate between them without fixed minimums for each category.
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Large-cap funds invest in India’s top 100 companies by market size, mid-cap funds in companies ranked 101st to 250th, and small-cap funds in companies beyond the 250th rank.
1. Commercial Insurance: Types, Costs, and Key Considerations
Amit Raje is an experienced marketer who has worked in various Fintechs and leading Financial companies in India. With focused experience in Digital, Amit has pioneered multiple digital commerce in India. Now, close to two decades later, he is the vice president and head of the D2C business department. He masters the skill of strategic management, also being certified in it from IIMA. He has challenged his challenges and contributed his efforts in this journey of digital transformation.
Prasad Pimple has a decade-long experience in the Life insurance sector and as EVP, Kotak Life heads Digital Business. He is responsible for developing user friendly product journeys, creating consumer awareness and helping consumers in identifying need for life insurance solutions. He has 20+ years of experience in creating and building business verticals across Insurance, Telecom and Banking sectors
In this policy, the investment risk in the investment portfolio is borne by the policyholder.
Kotak e-Invest
Features
Ref. No. KLI/22-23/E-BB/521
The information herein is meant only for general reading purposes and the views being expressed only constitute opinions and therefore cannot be considered as guidelines, recommendations or as a professional guide for the readers. The content has been prepared on the basis of publicly available information, internally developed data and other sources believed to be reliable. Recipients of this information are advised to rely on their own analysis, interpretations & investigations. Readers are also advised to seek independent professional advice in order to arrive at an informed investment decision. Further customer is the advised to go through the sales brochure before conducting any sale. Above illustrations are only for understanding, it is not directly or indirectly related to the performance of any product or plans of Kotak Life.
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