Mutual Fund Types - Investment Parameters

Tthe mutual funds can be broadly classified on the basis of investment parameters. Each category of funds is backed by an investment philosophy, which is pre-defined in the objectives of the fund. The investor can align his own investment needs with the funds objective and invest accordingly.



By investment objective:

    * Growth Schemes: Growth Schemes also known as equity schemes aims to provide capital appreciation over medium to long term. These schemes normally invest a major part of their fund in equities and are willing to bear short-term decline in value for possible future appreciation.

    * Income Schemes: Income Schemes are also known as debt schemes. The aim of these schemes is to provide regular and steady income to investors. These schemes generally invest in fixed income securities such as bonds and corporate debentures. Capital appreciation in such schemes may be limited.

    * Balanced Schemes: They are designed to provide the benefits of both growth and income schemes by periodically distributing a part of the income and capital gains. These schemes invest in both shares and fixed income securities, in the ratio indicated in the offer document (usually 50:50).

    * Money Market Schemes: Money Market Schemes aim to provide easy liquidity, preservation of capital and moderate income. These schemes generally invest in safer, short-term instruments, such as treasury bills, certificates of deposit, commercial paper and inter-bank call money.

Other schemes

    * Tax Saving Schemes:
Tax-saving schemes offer tax rebates to the investors under tax laws prescribed from time to time. Under Sec.88 of the Income Tax Act, contributions made to any Equity Linked Savings Scheme (ELSS) are eligible for rebate.

    * Index Schemes:
Index schemes attempt to replicate the performance of a particular index such as the BSE Sensex or the NSE 50. The portfolio of these schemes will consist of only those stocks that constitute the index. The percentage of each stock to the total holding will be identical to the stocks index weightage. And hence, the returns from such schemes would be more or less equivalent to those of the Index.

    * Sector Specific Schemes:
These are the schemes which invest only on those sectors as specified in the offer documents. Few examples are Software, Pharmaceuticals, Infrastructure, Petroleum stocks, Mining etc. The returns in these funds dependents on the performance of the respective industries. These funds are capable of giving higher returns when those selected sectors are booming, but they are very risky compared to diversified funds. Investors need to keep a watch on the performance of those sectors and must exit at an appropriate time.