Equity, debt, hybrid, liquid and equity-linked savings scheme (ELSS) are some of the common types of Mutual Funds available in India.

The Mutual Fund industry has come a long way in India since its inception in 1963. In the last 10 years, the industry grew at a compound annual growth rate (CAGR) of 19%, with the total asset under management (AUM) standing at a whopping Rs. 22.86 trillion [1] as of 31st December 2018. In this article, we will discuss the different types of Mutual Funds available where you can invest.

1. Equity Funds
Also known as stock funds, equity funds invest in stocks of different companies. There’s a fixed proportion or a certain percentage which equity funds must invest into stocks of different firms. The returns from equity funds depend on how well the stocks of the company perform.Generally, equity funds have the potential to deliver returns that can beat the effects of inflation in the long run. In other words, the returns from equity funds help you counter inflation, which reduces the value of money with time.

2. Debt Funds
Unlike equity funds that invest in stocks of companies, debt funds invest in fixed-return instruments such as corporate bonds, government securities, treasury bills and commercial papers among others. While stocks can be volatile, fixed-income instruments are relatively stable.If you are a conservative investor who don’t want to take a high risk with your money, you can invest in debt funds. These funds can be an alternative to bank fixed deposits.

3. Hybrid Funds
Hybrid funds invest in a mix of equities and debt. In other words, these funds invest a certain portion into equities, while the rest in debt. Thus, hybrid funds are designed to give you the best of both worlds – equities and debt.If you want to gain from the high return potential of equities and also protect your gains from taking a hit due to market fluctuations, hybrid funds can be an ideal choice.

4. Liquid Funds
Liquid funds as the name suggest are highly liquid in nature. It means you can redeem them anytime you want to. These are a category of debt funds which invest in debt and money market instruments such as government bonds and treasury bills with a maturity period of up to 91 days.These funds have no lock-in period and are a better alternative to a bank savings account. If you want to accumulate money for an emergency or a short-term goal such as going on a vacation.

5. Tax-Saving Funds or ELSS
Equity-linked savings scheme or ELSS is a type of Mutual Fund which offers tax-benefits. Investments up to Rs. 1.5 lakh in a financial year made in an ELSS fund can be claimed as tax deduction under section 80C of the Income Tax Act, 1961. ELSS funds come with a lock-in period of 3 years. It means you can’t withdraw your money before 3 years. Being equity-focussed, investing in an ELSS fund can give you potentially high returns in the long run.

Choose a Mutual Fund based on your life goal, risk appetite and duration for which you wish to remain invested.

Explore different Mutual Funds here.

* Terms & conditions apply. The information provided in this article is generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circumstances.