Sunday, October 29, 2006

Fund Flavours …

Fund Flavours …

If the concept of Mutual Fund is so simple, why does Mutual Fund investing seem so complex? A common man is so much confused about the various kinds of Mutual Funds that he is afraid of investing in these funds as he cannot differentiate between various types of Mutual Funds with fancy names. There are nearly 30 AMCs offering close to 500 schemes in India today. A systematic categorization will put things in the proper perspective and guide you while investing in Mutual Funds. Let's go over the many different flavors of funds.

Mutual Funds can be classified into the following 4 broad categories:

1. Portfolio 2. Functional 3. Geographical and 4. Specialised

In the first place, we have the Portfolio Classification on the following basis

Equity/Growth Funds, Debt/Income Funds, Balanced Funds, Money Market Mutual Funds (MMMFs), Gilt Funds, Index Funds, Sector Funds, Hedge Funds and Leveraged Funds.

Secondly, the Functional or Operational Classification is done on the following basis

Liquidity - Open-ended Funds, Close-ended Funds and Interval Funds
Investment Strategy – Growth and Value Funds
Trading Strategy - Active and Passive Funds
Security Selection – Top Down, Bottom Up Funds and Technical Funds
Market Capitalisation – Small Cap, Mid Cap and Large Cap Funds
Load and Expenses – Load Funds and No Load Funds

Thirdly, under the Geographical Classification, we have the Domestic Mutual Funds and Offshore Mutual Funds.

Last but not the least, we have Specialized Funds like Exchange Traded Funds (ETFs), the Funds of Funds, Mutual Funds with Tax Benefits and Socially Responsible or Ethical Funds which are all attempting to take the Mutual Fund concept to the next level.

A detailed discussion of each category, taken one at a time , will be taken up in the subsequent blogs.

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