Open-Ended Funds are available for subscription throughout the year. These funds do not have a fixed maturity. Investors have the flexibility to buy or sell any part of their investment at any time, at the prevailing price (Net Asset Value – NAV) at that time.
Close Ended Funds begin with a fixed corpus and operate for a fixed duration. These funds are open for subscription only during a specified period. When the period terminates, investors can redeem their units at the prevailing NAV.
On the basis of Asset Class
Equity Funds invest in shares like growth stocks, momentum stocks, value stocks or income stocks depending on the investment objective of the fund. Generally, the investment objective of this class of funds is long-term capital growth. There are, however, many different types of equity funds :
The Term Value Fund refers to a style of investing that looks for high quality, low growth companies that are out of favor with the market. These companies are characterized by low price-to-earnings (P/E), low price-to-book (P/B) ratios, and high dividend yields.
Growth Fund refers to schemes which include companies that have had (and are expected to have) strong growth in earnings, sales, and cash flows. These companies typically have high P/E ratios and do not pay dividends.
Large-Cap Fund schemes comprise of companies have high market capitalizations. Market cap is derived by multiplying the share price by the number of shares outstanding. Large-cap stocks are typically blue chip firms that are often recognizable by name. Small-cap stocks refer to companies that have low market capitalization.These smaller companies tend to be newer, riskier investments. Mid-cap stocks fill in the gap between small- and large-cap.
A mutual fund may blend its strategy between investment style and company size. For example, a large-cap value fund would look to large-cap companies that are in strong financial shape but have recently seen their share prices fall. The opposite of this would be a fund that invests in startup technology companies with excellent growth prospects
Debt funds invest money in bonds, government securities, debentures and money market instruments. These funds may invest in long-term and/or short-term maturity bonds They are often actively managed and seek to buy relatively undervalued bonds in order to sell them at a profit. These mutual funds are likely to pay higher returns than certificates of deposit and money market investments, but debt funds aren’t without risk. Because there are many different types of bonds, bond funds can vary dramatically depending on where they invest. For example, a fund specializing in high-yield junk bonds is much riskier than a fund that invests in government securities. Furthermore, nearly all bond funds are subject to interest rate risk, which means that if rates go up the value of the fund goes down.
Hybrid funds or Income funds
Hybrid funds invest in a mix of both equity and debt. In order to retain their equity status for tax purposes, they generally invest at least 65% of their assets in equities and roughly 35% in debt instruments, failing which they will be classified as debt oriented schemes and be taxed accordingly.
Income funds are named for their purpose: to provide current income on a steady basis. These funds invest primarily in government and high-quality corporate debt, holding these bonds until maturity in order to provide interest streams. While fund holdings may appreciate in value, the primary objective of these funds is to provide a steady cash flow to investors.
Monthly Income Plans (MIPs) fall within the category of hybrid funds. MIPs invest up to 25% into equities and the balance of the debt. As such, the audience for these funds consists of conservative investors and retirees. Because they produce regular income, tax-conscious investors may want to avoid these funds.