Types of mutual funds

Mutual funds and coffee have one thing in common. Both have a very wide range, which can be downright confusing if you are not familiar with them. Which is why we decided to simplify the universe of mutual funds for you. This will help you pick the right mutual fund/s.

At the broadest level, mutual funds are classified into three types:

• Equity funds
  The primary criterion for classifying equity funds is the size of the companies they invest in. There are funds that mostly focus either on large companies or medium-sized or small companies.
  In addition, there are also those that keep their assets distributed among all of these in some ratio.
  Then there are other equity funds that invest in a particular sector (such as banking, technology etc.) or a broad-based theme (business cycles, housing opportunities, etc.).

• Debt funds
  These funds are categorised based on the maturity profile and the type of the underlying instrument.

• Hybrid funds
  These funds have a mix of equity and debt. They are classified as per the proportion of equity in the portfolio.

Why so many mutual funds?
That's because different mutual funds have different risk-and-reward profiles. You must choose a fund that best suits your investment strategy and goals.

Having said that, it doesn't mean you need to personally go through thousands of funds before investing. Far from that. In fact, many of these mutual funds may sound unique but are pretty similar to each other. So, you need to look through the advertising spin.

If that sounds time-consuming, you can head to this page to view the top-rated mutual funds recommended by our seasoned team of researchers. You are best served by keeping things simple (and ignoring a vast majority of funds that are inherently the same but with a different name).