Definition

A mutual fund is a type of financial vehicle made up of a pool of money collected from many investors to invest in securities like stocks, bonds, money market instruments, and other assets.

Mutual Funds are managed by Asset Management Companies (AMC) which need to be approved by SEBI. A Custodian who is registered with SEBI holds the securities of various schemes of the fund. The trustees of the AMC monitor the performance of the mutual fund and ensure that it works in compliance of SEBI Regulations.

Regulations on Mutual Fund

A sponsor of a mutual fund scheme, a group of the company or an associate which involves asset management company (AMC) of the fund, cannot hold the following in any form:

  • 10% or above of the voting rights and shareholding in the AMC or any other mutual fund scheme
  • An AMC cannot have representation on the board of any other mutual fund
  • Shareholders can’t hold more than 10% of the shares both directly and indirectly in AMC of the Mutual Fund

Types of mutual funds

Mutual funds are categorised and rationalised by SEBI

  • Equity Funds

A Mutual Fund scheme is classified as an Equity Mutual Fund if it invests more than 60% of its total assets in the equity shares of different companies. The balance amount can be invested in money market instruments or debt securities as per the investment objective of the scheme.

 

Category Name Definition
Large Cap Fund An open-ended equity scheme primarily investing in large cap stocks. Minimum 80% total assets are invested in equity & equity related securities of large cap companies
Mid Cap Fund An open-ended equity scheme primarily investing in mid cap stocks. Minimum 65% of total assets are invested in equity & equity related instruments of mid cap companies
Small Cap Fund An open-ended equity scheme primarily investing in small cap stocks. Minimum 65% of total assets are invested in equity & equity related securities of small cap companies
Multi Cap Fund An open-ended equity scheme investing in stocks across market capitalisation (large, small, mid cap). Minimum 65% of total assets are invested in equity and equity related instruments
Large & Mid Cap Fund An open-ended equity scheme investing in stocks from both large cap & mid cap companies. Minimum 35% of total assets are invested in equity of large cap companies and 35% in mid cap companies
Dividend Yield Fund An open-ended equity scheme primarily investing only in corporations that have significantly high dividend yielding stocks. Minimum 65% of total assets invested in equity
Value Fund A Value Fund is a type of Mutual Fund which follows value investing strategy. Minimum 65% of total assets is invested in equity & equity related instruments
Contra Fund A Contra Fund is a type of Mutual Fund which follows contrarian investing strategy. Minimum 65% of total assets is invested in equity & equity related instruments
Focused Fund An open-ended equity scheme investing in maximum 30 stocks from either of the market caps. Minimum 65% of total assets are invested in equity related instruments
Sectorial/Thematic fund An open-ended equity scheme investing in businesses that operates in a particular sector or industry. Minimum 80% of total assets are invested in equity of a particular sector/theme
ELSS An open-ended equity linked tax saving scheme with a lock-in of three years. Minimum 80% of total assets are invested in equity related securities
  • Debt Funds

Debt funds are mutual funds that invest in fixed income securities like bonds and treasury bills. Gilt fund, monthly income plans (MIPs), short term plans (STPs), liquid funds, and fixed maturity plans (FMPs) are some of the investment options in debt funds.

Category Name Definition
Overnight Fund An open ended debt scheme which invests in overnight securities having maturity of 1 day
Liquid Fund An open ended debt scheme which invests in debt & money market instruments with maturity up to 91 days
Ultra Short Duration Fund An open ended debt scheme which primarily invests in debt instruments with Macaulay duration between 3 to 6 months
Low Duration Fund An open ended debt scheme which invests in debt instruments with Macaulay duration between 6 to 12 months
Money Market Fund An open ended debt scheme which invests in debt & money market instruments having maturity up to 1 year
Short Duration Fund An open ended debt scheme which invests in debt instruments with Macaulay duration between 1 to 3 years
Medium Duration Fund An open ended debt scheme which invests in debt instruments with Macaulay duration of 4 to 7 years
Long Duration Fund An open ended debt scheme which invests in debt instruments with Macaulay duration greater than 7 years
Dynamic Bond Fund An open ended debt scheme which invests in debt instruments across durations
Corporate Bond Fund An open ended debt scheme which invests in highest rated corporate bonds. Minimum 65% of total assets are allocated in corporate bonds
Credit Risk Fund An open ended debt scheme which invests in below highest rated corporate bonds. Minimum 65% of total assets are allocated in below highest rated corporate bonds
Banking and PSU Fund An open ended scheme which invests in debt instruments of Banks, Public Sector Undertakings and Public Sector Financial Institutions. Minimum 80% of total assets are allocated in securities from these sectors
Gilt Fund An open ended scheme which invests in government securities across maturity
Gilt Fund with 10 year constant  duration An open ended debt scheme investing in government securities having a constant maturity of 10 years
Floater Fund An open ended debt scheme primarily investing in floating rate instruments
  • Hybrid Schemes

What are hybrid schemes? Hybrid schemes, as their name suggests, invest in a mix of equity and debt. The aggressive ones invest more in equity, whereas the conservative hybrid schemes invest more in debt instruments.

Category Name Definition
Conservative Hybrid Fund An open ended hybrid scheme which primarily invests 75% to 90% of total assets in debt instruments and 10% to 25% in equity
Balanced Hybrid Fund An open ended balanced scheme which invests 40% to 60% of total assets in debt instruments and 40% to 60% in equity instruments
Aggressive Hybrid Fund An open ended aggressive scheme which primarily invests 65% to 80% of total assets in equity & equity related instruments. 20% to 30% assets are placed in debt securities
Dynamic Asset Allocation or Balanced Advantage Fund An open ended fund which invests in equity/debt that is managed dynamically
Multi Asset Allocation Fund An open ended scheme investing in different asset classes with a minimum of 10% allocated in each asset class
Arbitrage Fund An open ended scheme investing in arbitrage opportunities with a minimum of 65% of total assets allocated in equity & equity related securities
Equity Savings An open ended scheme investing at least 65% in equity & equity related instruments and at least 10% in debt securities
  • Solution Oriented Schemes

Solution oriented schemes means focus on a particular solution. They are helpful for those investors who wish to create long-term wealth that mainly includes retirement planning and a child’s future education by investing in Mutual Funds.

Category Name Definition
Retirement Fund An open ended retirement solution oriented scheme which comes with a lock-in of 5 years or till retirement age (whichever is earlier)
Children’s Fund An open ended fund for investment for children which comes with a lock-in for minimum 5 years or till the child attains the age of maturity
  • Other Schemes
Category Name Definition
Index Funds/ETF An open ended scheme which replicates/tracks the index. Minimum 95% of securities are invested in the securities of a particular index
FoF (Overseas/Domestic) An open ended fund of fund scheme which invests 95% of the total assets in the underlying fund

 

Leave a comment

Your email address will not be published. Required fields are marked *