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Sreeram Viswanath

Expert

Published on: Sep 16, 2026

Types of Mutual Funds

Mutual funds are an investment platform wherein a pool of money is accumulated from multiple investors with the objective of saving and maximizing their investments. The funds collected this way are further invested in various asset classes such as debt funds and liquid assets, among others. Profits and losses are shared among the investors in equal proportions. These funds can be categorized by investment goals, asset class, structure, and risk. This article provides an overview of the different types of Mutual Funds.

Classification Based on Investment Goals

The following mutual funds are categorized by their investment objectives:

  1. Growth Funds
  2. Aggressive Growth Funds
  3. Income Funds
  4. Liquid Funds
  5. Tax-Saving Funds
  6. Capital Protection Funds
  7. Fixed Maturity Funds
  8. Pension Funds

Growth Funds

These schemes target investors with a long-term investment horizon. Growth Funds allow investors to invest primarily in equity stocks, aiming for capital appreciation.

Aggressive Growth Funds

Aggressive Growth Funds offer significant potential for rapid growth, although they come with higher risk levels. These are ideal for investors seeking higher returns despite greater risk exposure.

Income Funds

Income Funds fall under debt mutual funds and primarily invest in bonds, certificates of deposits, and securities, making them suitable for risk-averse individuals.

Liquid Funds

Another type of debt fund, Liquid Funds invest in debt instruments and money markets with maturities up to 91 days, providing a high level of liquidity with a maximum investment limit of Rs. 10 lakhs.

Tax-Saving Funds

Also known as Equity Linked Savings Scheme (ELSS), these funds offer the dual benefits of wealth creation and tax savings with a lock-in period as short as three years, suitable for salaried and long-term investors.

Capital Protection Funds

These funds aim to protect the investor's principal while offering modest returns through investments in bonds and equities. They are designed to prevent losses while ensuring capital security.

Fixed Maturity Funds

These funds have a set maturity period similar to Fixed Deposits, ranging from 1 to 5 years, providing a predictable investment timeline.

Pension Funds

Designed to secure major personal and family needs like medical emergencies or child-related expenses, Pension Funds ensure financial stability during critical times.

Classification Based on Asset Class

Investment based on asset class includes:

  1. Equity Funds
  2. Debt Funds
  3. Money Market Funds
  4. Hybrid/Balanced Funds

Equity Funds

Equity Funds predominantly invest in stocks. Investors' money is pooled and invested in shares across various companies, with returns influenced by market performance.

Debt Funds

These funds invest in fixed-income securities like bonds and treasury bills, providing a stable income source due to their fixed interest rates and maturity dates.

Money Market Funds

Money Market Funds engage in the short-term money market, investing in instruments like T-bills and certificates of deposit, managed by entities like governments and corporations.

Hybrid Funds

A blend of stocks and bonds, Hybrid Funds balance risk by diversifying investments across asset classes, ideal for investors who can tolerate moderate risk levels.

Classification Based on Structure

Mutual funds can also be categorized based on their structure:

  1. Open-Ended Funds
  2. Close-Ended Funds
  3. Interval Funds

Open-Ended Funds

These funds allow flexible entry and exit. The unit capital changes dynamically based on investor transactions, offering liquidity and convenience.

Close-Ended Funds

With a fixed unit capital, these funds allow a limited number of shares for sale within a specified period.

Interval Funds

Blending features of both open and closed funds, Interval Funds offer purchase and redemption opportunities only at specified intervals, making them suitable for long-term savers.

Classification Based on Risk

Here’s how mutual funds are sorted by risk level:

  1. Very Low-Risk Funds
  2. Low-Risk Funds
  3. Medium-Risk Funds
  4. High-Risk Funds

Very Low-Risk Funds

These funds include liquid and ultra-short-term funds, which are low-risk options returning approximately 6% annually, ideal for short-term financial goals.

Low-Risk Funds

Funds like ultra-short-term or arbitrage funds offer slightly higher returns of 6-8% and provide a stable investment environment for cautious investors.

High-Risk Funds

Targeted at investors seeking high returns, High-Risk Funds feature elevated risk levels associated with fluctuating market conditions, requiring a higher risk tolerance.

Gift Funds

Gift Funds allow individuals to assist others in building a solid financial future by gifting investments in mutual funds, promoting financial security.

Exchange Traded Funds

Traded on exchanges, these funds mirror the fluctuations of market prices throughout the trading day, offering versatile investment options. For a detailed guide, explore SBI Mutual Funds.

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Frequently Asked Questions

Common questions about Types of Mutual Funds: Investment Strategies for Optimal Growth.

Mutual funds are an investment platform where a pool of money from multiple investors is collected and invested in various asset classes such as debt funds, liquid assets, and equity stocks. The profits or losses are then shared proportionately among the investors.
The main types of mutual funds based on investment goals are growth funds, aggressive growth funds, income funds, liquid funds, tax-saving funds, capital protection funds, fixed maturity funds, and pension funds. Each type caters to different investment objectives and risk appetites.
Equity funds are a type of mutual fund that primarily invests in stocks or equities of different companies. The returns from these funds depend on the performance of the underlying stocks in the market, offering higher growth potential but also higher risk.
Open-ended mutual funds allow investors to buy or sell units at any time, with the fund's capital constantly changing. Closed-ended funds, on the other hand, have a predetermined number of units, restricting the sale of more than the agreed-upon units.
Low-risk mutual funds include options like liquid funds, ultra-short-term funds, and arbitrage funds. These funds offer relatively lower returns, usually between 6-8%, but carry lower risk levels, making them suitable for short-term financial goals or safer storage of money.
Mutual funds are classified based on asset class into equity funds (stocks), debt funds (fixed-income securities), money market funds (traded on the money market), and hybrid or balanced funds (a mix of bonds and stocks).
Tax-saving mutual funds, also known as Equity Linked Saving Schemes (ELSS), offer investors the dual benefit of building wealth while also saving on taxes. These funds have a lock-in period of just three years, making them suitable for long-term and salaried investors.
Interval funds are a type of mutual fund that combines features of open-ended and closed-ended funds. Investors can purchase or exit these funds only at predefined intervals set by the fund house, and they remain closed during other periods.
High-risk mutual funds are designed for investors seeking higher returns in the form of interest and dividends. However, these funds also carry a higher level of risk, as higher potential returns are typically associated with greater risk.
Gift funds refer to mutual funds that are gifted to friends or acquaintances with the intention of securing their financial future. These funds can be a thoughtful way to contribute to the recipient's long-term financial goals and growth.