Balanced Funds
Mutual funds that invest in equity as well as debt and money
market instruments are termed as balance funds. Normally
equity instruments are the major portion of the investment profile ranging
from 60 to 80% and rest in debt and money market instruments. The fund house
with a variation percentage predetermines the equity to debt investment ratio
that they can use to switch majority of the investment into debt at any given
point of time.
Large-cap funds
Funds that invest in companies with large market
capitalization are known as large cap funds. The definition of large cap stocks
are defined by each fund differently and so understanding the fund investment
style helps understanding what kind of diversification one can achieve
investing in the fund.
Blue-chip, Top 100, Top 200, Equity funds are some of the
common names used for large cap funds but investing in each of those funds from
same or different fund house does not diversify mutual fund investments.
Mid Cap & Small Cap Funds
Funds that invest primarily in medium size companies or
medium market capitalization companies are termed as mid cap funds and funds
that invest in small size companies or small market capitalization are termed
as small cap funds. Ideally mid and small cap companies are clubbed together
into one group by fund houses to name the fund as mid and small cap funds. The
idea is to invest into small and medium companies without too much
segmentation.
Small and mid cap category of funds tend to avoid the market
leader and try to invest in future leaders and have higher returns but with at
the price of higher risk.
Arbitrage Funds
Arbitrage funds are funds that remain in cash or debt
investments and look for arbitrage opportunities in various market segments
like difference in pricing between cash and derivatives segment.
Index Funds
An index fund is benchmarks an index for investment. Some of
the popular indexes for mutual funds are Nifty, Sensex, Nifty Junior, Nomura MF
Index, and CNX 500 etc.
Investing in Index funds along with a large cap fund may not
provide the needed diversification and it may just lead to investing in the
same companies through different funds.
Tax-saving ELSS Funds
Funds that have 3 years of locking period and provide tax
benefit under the section 80C are termed as tax saving ELSS funds. Every fund
house has one tax saving scheme and normally this fund invest in large cap
stocks. Check fund specific investments if you prefer to diversify your assets
with tax saving funds.
Remember investing in an ELSS fund with a large cap fund may
not provide the needed diversification.
International Funds
As the name suggest, funds that invests in opportunities
outside India. Some of the funds in this category include L&T Indo Asia
Fund, Birla Sun Life Intl. Equity Fund, and DSPBR World Gold Fund. Investing in
international fund can provide great deal of diversification. Remember that
there are quite a few international funds but all the international funds are
not same and some invests in International Equities, where as other invest in
international commodities like gold or oil.
Sector Specific Funds
Funds that invest in particular sectors like infrastructure,
banking, Information technology, FMCG, power etc. are call sector funds. Like
International funds, sector specific funds provide better diversification but
unless you want to be diversifying the complete portfolio yourself, it is
better to be investing in diversified funds.
Diversified Funds
Funds that neither invest in any particular sector nor
invest in any particular sized companies are termed as diversified funds.
Diversified funds can be a large cap, mid cap, small cap or even an
international fund but normally if a fund is in those categories we tend to
name them with those categories and not name them as diversified fund but any
fund that does not invest in any given sector is ideally a diversified fund.
Funds of Funds
Funds of Funds or FoF is a mutual fund which invests in
different mutual fund schemes instead of stocks and the biggest advantage of
investing in funds of funds is you get access to high end closed ended funds
and schemes which a retail investor may not be able to invest because of
minimum investment limits.
There are 2 kinds of funds of funds i.e. equity oriented and
debt oriented. Equity oriented fund of fund invests majorly in equity funds and
debt oriented fund of fund majorly invests in debt funds.
Gold Funds
Gold funds primarily invest in Gold ETFs. Investing in Gold
ETF’s directly than investing in Gold
funds.
Debt Funds
Debt funds invest in short-term or long-term bonds, Central
Government Loan, State Development Loan, NCDs or Non Convertible
Debentures or any other money market instruments. There can be lock-in periods
for investments in such Government instruments but you can invest in those
instruments through debt funds without any lock-in period.
Apart from lock-in periods, you are also able to invest in
good schemes at any given point of time that may not available when you want to
be investing in a debt fund.
Hybrid Funds
Most of the Balance funds invest majorly in equity to be
treated as equity fund for taxation (needs 65% of investment in equity) but
funds that do not have equity major investment profile and invest in equity,
debt as well as any other money market investment instruments are known as
hybrid funds.
