Four Primary Types of Mutual Funds:
Asset class categorizes four primary types of mutual funds:
- Equity Funds (Stocks or Shares)
- Debt Funds (Bonds/ Fixed Income)
- Hybrid Funds (Equity and Debt)
- Money Market Funds (Short -term debt)
All the four types of mutual funds caters to different risk levels, financial goals, from aggressive growth to capital preservation and liquidity.
Look at the breakdown of these categories:
1. Equity Funds (Stock Funds):
Invest in company shares, that aims for long-term capital appreciation (growth) and wealth creation.
2. Debt Funds (Bond Funds):
Invest in fixed-income securities like government bonds or corporate bonds, offering steady income and lower risk.
3.Hybrid Funds (Balanced Funds):
A combination of both stocks and bonds, balancing growth potential with stability.
Focus on very short-term, highly liquid debt instruments, providing high liquidity and low risk.
Other Key Types
Mutual funds also come in many other varieties, including:
- Index Funds & ETFs: Passively managed funds that track a market index like the S&P 500.
- Solution-Oriented Funds: Designed for specific goals, like retirement or child’s education.
- Tax-Saving Funds (ELSS): Offer tax benefits under Section 80C in India.
- Sectoral/Thematic Funds: Focus on specific industries (e.g., tech, pharma) or themes.