What are different types of Mutual Funds?

Mutual funds are categorized into various classes based on the pattern of investment. Generally, funds are traded as Equity funds, Money market funds, Index funds and Specialty funds with its own associated risk and return features. Therefore an investor must make a decision based upon the risk involved with respect to funds and credibility of the mutual fund house.

1. Equity funds – These funds invest in stocks and predominantly equity. They are usually associated with the highest risk and the highest return, One can select from an option of large – cap, mid – cap or small cap stock or a combination of these.
2. Money market funds – These funds invest in short term fixed income securities such as government bonds, treasury bills, commercial papers and certificate of deposits. It is a safer investment with low risk and potentially lower return
3. Index funds – This is where funds are invested in a proportion similar to that of market index (SENSEX or Nifty). Hence, as the market stands to gain or lose, the funds reflect the gains and losses in a similar manner.
4. Speciality funds – Some mutual fund houses focus on special sectors like banking, real estate, infrastructure etc. wherever they believe their expertise exists.
Mutual funds has huge earning potential based on how much risk an investor is willing to take and the credibility of the mutual fund houses the investors choose to associate themselves with.