Types of Mutual Fund Schemes
Mutual fund schemes may be classified on the basis
of their structure and investment objective.
By Structure
Open-end Funds
Open-end funds are available for subscription all
through the year. These do not have a fixed
maturity. Investors can conveniently buy and sell
units at Net Asset Value (NAV) related prices. The
key feature of open-end schemes is liquidity.
Closed-end Funds
A closed-end fund has a stipulated maturity period
that generally ranges from 3 to 15 years. The fund
is open for subscription only during a specified
period. Investors can invest in the scheme at the
time of the initial public issue and thereafter they
can buy or sell the units of the scheme on the stock
exchanges where they are listed. In order to provide
an exit route to the investors, some close-ended
funds give an option of selling back the units to
the mutual fund through periodic repurchase at NAV
related prices. SEBI Regulations stipulate that at
least one of the two exit routes is provided to the
investor.
Interval Funds
Interval funds combine the features of open-ended
and close-ended schemes. They are open for sale or
redemption during pre-determined intervals at NAV
related prices.
By Investment Objective
Growth Funds
The aim of growth funds is to provide capital
appreciation over the medium to long term. Such
schemes normally invest a majority of their corpus
in equities. It has been proved that returns from
stocks, have outperformed most other kind of
investments held over the long term. Growth schemes
are ideal for investors having a long term outlook
seeking growth over a period of time.
Income Funds
The aim of income funds is to provide regular and
steady income to investors. Such schemes generally
invest in fixed income securities such as bonds,
corporate debentures and Government securities.
Income funds are ideal for capital stability and
regular income.
Balanced Funds
The aim of balanced funds is to provide both growth
and regular income. Such schemes periodically
distribute a part of their earning and invest both
in equities and fixed income securities in the
proportion indicated in their Offer Documents. In a
rising stock market, the NAV of these schemes may
not normally keep pace or fall equally when the
market falls. These are ideal for investors looking
for a combination of income and moderate growth.
Money Market Funds
The aim of money market funds is to provide easy
liquidity, preservation of capital and moderate
income. These schemes generally invest in safer
short-term instruments such as treasury bills,
certificates of deposit, commercial paper and
inter-bank call money. Returns on these schemes may
fluctuate depending upon the interest rates
prevailing in the market. These are ideal for
corporate and individual investors as a means to
park their surplus funds for short periods.
Other Schemes
Tax Saving Schemes
These schemes offer tax rebates to the investors
under specific provisions of the Indian Income Tax
laws as the Government offers tax incentives for
investment in specified avenues. Investments made in
Equity Linked Savings Schemes (ELSS) and Pension
Schemes are allowed as deduction u/s 88 of the
Income Tax Act, 1961. The Act also provides
opportunities to investors to save capital gains u/s
54EA and 54EB by investing in mutual funds.
Special Schemes
Industry Specific Schemes
Industry Specific schemes invest only in the
industries specified in the offer document. The
investment of these funds is limited to specific
industries like Infotech, FMCG, Pharmaceuticals etc.
Index Schemes
Index schemes attempt to replicate the performance
of a particular index such as the BSE Sensex or the
NSE 50
Sectoral Schemes
Sectoral schemes are those which invest exclusively
in a specified sector. This could be an industry or
a group of industries or various segments such as
'A' Group shares or initial public offerings.
Gold Traded Funds
“Gold exchange traded fund scheme” shall mean a
mutual fund scheme that invests primarily in gold or
gold related instruments; gold-exchange traded fund
unit is like a mutual fund unit backed by gold as
the underlying asset and would be held mostly in
demat form. An investor would get a securities
certificate issued by the mutual fund running the
Gold-ETF defining the ownership of a particular
amount of gold. GETFs are designed to offer
investors a means of participating in the gold
bullion market without the necessity of taking
physical delivery of gold, and to buy and sell
through trading of a security on a stock exchange.
With gold being one of the important asset classes,
GETFs will provide a better, simpler and affordable
method of investing as compared to other investment
methods like bullion, gold coins, gold futures, or
jewellery.
Exchange Traded Fund
Exchange-traded funds (ETFs) are mutual fund schemes
that are listed and traded on exchanges like stocks.
ETFs trading value is based on the net asset value (NAV)
of the assets it represents. Generally, ETFs invest
in a basket of stocks and try to replicate a stock
market index such as the S&P CNX Nifty or BSE Sensex,
a market sector such as energy or technology, or a
commodity such as gold or petroleum.
ETFs are just what their name implies: baskets of
securities that are traded, like individual stocks,
on an exchange. Unlike regular open-end mutual
funds, ETFs can be bought and sold throughout the
trading day like any stock.
Most ETFs charge lower annual expenses than index
mutual funds. However, as with stocks, one must pay
a brokerage to buy and sell ETF units, which can be
a significant drawback for those who trade
frequently or invest regular sums of money.
Exchange Traded Fund
Exchange-traded funds (ETFs) are mutual fund schemes
that are listed and traded on exchanges like stocks.
ETFs trading value is based on the net asset value (NAV)
of the assets it represents. Generally, ETFs invest
in a basket of stocks and try to replicate a stock
market index such as the S&P CNX Nifty or BSE Sensex,
a market sector such as energy or technology, or a
commodity such as gold or petroleum.
ETFs are just what their name implies: baskets of
securities that are traded, like individual stocks,
on an exchange. Unlike regular open-end mutual
funds, ETFs can be bought and sold throughout the
trading day like any stock.
Most ETFs charge lower annual expenses than index
mutual funds. However, as with stocks, one must pay
a brokerage to buy and sell ETF units, which can be
a significant drawback for those who trade
frequently or invest regular sums of money.
Their passive nature is a necessity: the funds rely
on an arbitrage mechanism to keep the prices at
which they trade roughly in line with the net asset
values of their underlying portfolios. For the
mechanism to work, potential arbitragers need to
have full, timely knowledge of a fund's holdings.
Capital Protection Funds
'Capital Protection Oriented Scheme' means a mutual
fund scheme which is designated as such and which
endeavours to protect the capital invested therein
through suitable orientation of its portfolio
structure;"
Hedged fund
A hedge fund is a term commonly used to describe any
fund that isn’t a conventional investment fund,
i.e., it uses strategies other than investing long.
For example
- Short selling
- Using arbitrage
- Trading derivatives
- Leveraging or borrowing
- Investing in out-of-favour or unrecognized
undervalued securities
The name hedge fund is a misnomer as the funds may
not actually hedge against risk. The returns can be
high, but so can be losses. These investments
require expertise in particular investment
strategies. The hedge funds tend to be specialized,
operating within a given niche, specialty or
industry that requires the particular expertise. |
