TYPES OF MUTUAL FUNDS

EQUITY FUND
Equity funds are those that invest pre-dominantly in the equity shares of companies. There are variety of ways in which equity portfolio can be created for investors.

• Diversified Equity funds: These funds invest a pre-dominant 80-90% of the funds mobilized in equity and equity related products. They have the freedom to invest in both primary and secondary markets for equity.
• Sectoral funds: Sectoral funds choose to invest in one or more sectors of the equity markets.These sectors coucould vary depending on the investor preference and the return-risk attributes of the sector.
• Index Funds: Such funds avoid taking views on the performance of the companies, and instead focus pn creating a diversified, that simply replicates an existing market index.
• Equity linked Saving Scheme: One variation of the simple equity fund is the ELSS (Equity linked Saving Scheme). These are equity funds under a special scheme notified notified by the Government of India which is eligible for a tax rebate. This funds should invest atleast 90% of its funds in equity and equity linked investments. Investors have to hold their units for a minimum lock in period of 3 years to avail of the tax rebate.

DEBT FUND
Debt funds are those that primarily invets in debt securities. Since most debt securities pay periodic interest, these funds are also known as income funds. The universe of debt securities comprise of long term instruments such as bond issues by central & state Govt., Public sector Organizations, Public financial institution and Private sector companies, and short term instruments such as call money lending, commercial papers, certificate of deposits, and treasury bills.

• Liquid funds and Money Market Funds: These debt funds invest only in instruments with maturities less than a year. The investment portfolio is liquid and enables investor to hold their investments for a very short horizon of a day or more.
• Gilt Funds: A gilt fund invests only in securities that are issued by the Government, and therefore doesnot carry any credit risk. Thes funds invest in short and long term securities issued by the governmenmt. Thses funds enable retail investors to invest in government securities.
• Income Funds: These funds invest in a portfolio of debt securities chosen from the universe of debt securities mentioned abopve. The fund manager has the freedom to choose from the universe of debt securities: government and others, as well as long & short term.

BALANCED FUNDS
Funds that invets both in debt & equity market are balanced funds. A typical balanced fund would be invested in both the markets . the variation are funds that invest predominantly in equity (about 70%) and keep a smaller part of their portfolios in debt securities. These funds seek to enhance the income potential of their equity component, by bringing in the debt. Similarly there are predominantly debt funds (over 70% in debt securities) which invest in equity to provide some growth potential to their funds.

A balanced fund also tends to provide investors exposure to both equity & debt market in one product. Therefore benefits of diversification get the future enhanced, as equity & debt market have different risk & return profiles.

Keywords : mutual funds, equity funds, debt funds, diversified equity fund, sectoral funds, index funds, quity linked saving scheme, elss, liquid funds, gilt funds, income funds, balanced funds