In India’s growing investment space, mutual funds have become more like a starting point for individuals participating in the financial markets. Still, the wide range of choices might feel overwhelming to start.
Within this expanding space, the types of mutual funds in India highlight how each option serves a different role. While some funds aim for growth over time, others are structured around income or stability, depending on time horizon and capital investment.
This is where a breakdown of the types of mutual funds in India further helps connect them to real decisions.
Schemes Based on the Maturity Period
As the discussion moves, the time frame of a scheme begins to define how investors enter and exit.
The following mutual funds are based on how long they remain active and the flexibility they offer:
Open-Ended Funds
Open-ended schemes are available for investment and redemption continuously on all the business days, with transactions being carried out at the existing Net Asset Value (NAV).
It does not have a fixed maturity period, and you can transact directly with the mutual fund for buying or redeeming units. Their main feature is liquidity, as units can be bought or sold easily at prices linked to the NAV. A large share of mutual funds falls under this category.
Close-Ended Funds
Close-ended funds have a predetermined maturity period. The units are available for investment only during the initial offer stage and are redeemed only on maturity. After this, units are listed on stock exchanges, which allows trading them before maturity based on market demand and supply.
Interval Funds
Interval funds are a combination of features from both open and closed-ended schemes. They allow purchase and redemption during specified intervals, which are announced in advance. Each transaction window stays open for at least two days, with a minimum gap of 15 days between two such periods. They are available on the stock exchanges such as the NSE and the BSE for trading, giving investors an additional way to trade units.
Based on Principal Investments
Now, let us shift the focus to what these funds actually invest in. This category is defined by the nature of investments within each fund.
Equity Schemes
Equity schemes allocate capital primarily in shares (stocks/equities) and equity-related assets, aiming for long-term capital appreciation. These funds can see short-term movements, they are generally preferred by investors comfortable with higher risk over longer time horizons.
Further, based on market capitalisation, they are divided into the following categories, each representing companies of different sizes and growth potential:
| Fund Type | Investment Requirement |
| Multi-Cap Fund | Invest at least 75% of the capital in equity and equity-related securities. |
| Flexi-Cap Fund | Invest a minimum of 65% of the capital in equities and equity-oriented assets. |
| Large-Cap Fund | Allocates a minimum of 80% to well-established, large-sized companies. |
| Large & Mid-Cap Fund | Splits allocation between large and mid-sized companies, with at least 35% in each segment. |
| Mid-Cap Fund | Places at least 65% of its investments in mid-sized companies. |
| Small-Cap Fund | Keeps a minimum of 65% allocation in companies that fall under small-cap with higher growth potential. |
| Dividend Yield Fund | Focuses on stocks that regularly distribute dividends, with a majority allocation to equities. |
| Value Fund | Selects stocks that appear undervalued compared to their fundamentals, with a significant equity allocation. |
| Contra Fund | Takes positions that differ from existing market trends, while maintaining a strong equity allocation. |
| Focused Fund | Builds a concentrated portfolio with a limited number of stocks (minimum 30), while keeping 65% of the allocation in equities. |
| Sectoral/Thematic Fund | Concentrates 80% capital within a specific sector or theme, with a high allocation to related stocks. |
| ELSS | Invests 80% in equities under tax-saving provisions, following the structure of the equity-linked savings scheme. |
Debt Schemes
Debt schemes allocate capital mainly to debt assets and other fixed-income securities. These include instruments issued by the government, public financial institutions, and companies, such as treasury bills, government issues, and bonds.
They can be classified based on the duration of investments, such as short-term, medium-term, or long-term funds. They are also grouped by issuer type or strategy, and are generally positioned for income generation with a focus on capital preservation.
Debt fund categories are defined under SEBI’s guidelines for classification and standardisation of mutual fund schemes:
| Debt Fund Type | Description |
| Overnight Fund | Contains instruments that come due within a single day, keeping the holding period very short. |
| Liquid Fund | Allocates to debt and money market assets with maturities up to 91-days. |
| Ultra Short Duration Fund | Maintains an average portfolio duration of about 3 to 6 months. |
| Low Duration Fund | Keeps overall portfolio duration within 6 to 12 months using debt and money market securities. |
| Money Market Fund | Focuses on money market instruments with maturities extending up to one year. |
| Short Duration Fund | Holds debt and money market securities with a portfolio duration ranging from 1 to 3 years. |
| Medium Duration Fund | Maintains exposure to debt instruments with duration typically between 3 to 4 years. |
| Medium to Long Duration Fund | Keeps portfolio duration in the range of 4 to 7 years through debt and money market assets. |
| Long Duration Fund | Focuses on debt instruments where the portfolio duration extends beyond 7 years. |
| Dynamic Bond Fund | Adjusts investments across different durations based on changes in interest rates. |
| Corporate Bond Fund | Maintains a minimum of 80% allocation in highly rated corporate bonds, usually AA+ and above. |
| Credit Risk Fund | Allocates at least 65% of the portfolio to lower-rated corporate bonds, typically AA and below. |
| Banking and PSU Fund | Keeps a minimum of 80% invested in debt securities issued by banks, public sectors companies, and corporations. |
| Gilt Fund | Allocates at least 80% of the portfolio to government securities across various maturities. |
| Gilt Fund with 10-Year Constant Duration | Maintains a minimum 80% allocation to government instruments with a duration of 10 years. |
| Floater Fund | Keeps at least 65% invested in floating rate instruments, including those created using derivatives. |
Hybrid Schemes
Hybrid funds are made up by combining equity and fixed-income assets, helping balance returns with relative stability. The mix of these different asset classes moderates risks, as the debt portion provides stability while the equity portion contributes to returns.
SEBI classifies hybrid funds into the following 7 sub-categories:
| Hybrid Fund Type | Description |
| Conservative Hybrid Fund | Keeps equity between 10% and 25%, while the larger portion, about 75% to 90%, is held in debt instruments. |
| Balanced Hybrid Fund | Maintains a near-equal split, with 40% to 60% allocated to both equity and debt components. |
| Aggressive Hybrid Fund | Holds a higher equity share ranging from 65% to 80%, with the remaining 20% to 35% in debt instruments. |
| Dynamic Asset Allocation / Balanced Advantage Fund | Shifts investment between equities and debts as per the market situations, with flexibility to move anywhere between 0% and 100% in either. |
| Multi Asset Allocation Fund | Spreads investments across minimum 3 asset classes, ensuring at least 10% allocation to each. |
| Arbitrage Fund | Uses arbitrage opportunities in equity markets, while maintaining a minimum of 65% exposure to equity and related instruments. |
| Equity Savings Fund | Combines equity, debt, and derivatives, with at least 65% in equity, a minimum of 10% in debt, and derivatives used for hedging. |
Solution-Oriented Schemes
Solution-oriented funds focus on particular financial objectives, such as building a retirement corpus or meeting education expenses. These funds may come with a lock-in period, which encourages disciplined and long-term investing.
| Fund Type | Description |
| Retirement Fund | Comes with a minimum lock-in period of 5 years or until retirement, whichever happens first. |
| Children’s Fund | Includes a lock-in of five years or continues until the child attains adulthood, whichever occurs earlier. |
Other Schemes
This category includes funds that follow specific strategies or invest across different structures beyond traditional equity, debt, or hybrid formats.
| Scheme Type | Description |
| Multi Asset Funds | These funds invest across different assets and commodities, which brings diversification within a single portfolio. |
| Arbitrage Funds | These funds use the price differences between markets by buying and selling the same asset simultaneously to generate returns from the gap. |
| Index Funds | They replicate a market index by investing in the same securities in the equal proportion, with an aim to generate similar returns to the index. |
| Exchange Traded Funds (ETFs) | These funds are linked to an index, commodity, or asset group, and can be traded on exchanges in the same way as stocks during market hours. |
| Fund of Funds (FoF) | These funds build their portfolio by investing in other mutual funds, rather than purchasing securities on their own. |
| Gold Exchange Traded Funds (FoF) | Invest in gold ETFs, where each unit represents a fixed quantity of gold and moves with gold prices. |
Conclusion
Understanding the types of mutual funds in India helps to clear investment choices across different time horizons and financial goals.
Where each category of mutual funds, whether equity, debt, hybrid, or others, serves a distinct purpose within a portfolio. The selection of the right type of fund depends on how they align with individual preferences around capital allocation and stability.
To build a balanced approach, investors have to be aware rather than assuming. Over time, this supports more informed and effective decision-making.
FAQs
The best mutual fund type is a choice that depends on individual goals, time horizon, and risk tolerance. Equity funds may suit long-term growth, while debt funds are considered for stability and income. However, a combination of fund types is often used by the investors, rather than relying on one category alone.
Mutual funds in India are classified into five main categories: equity, debt, hybrid, solution-oriented, and other schemes. Within these, there are several sub-categories defined by SEBI, based on factors such as asset allocation, investment strategy, and maturity period.
Debt funds, especially those investing in high-quality government or short-term instruments, are generally considered safer compared to equity funds. However, no mutual fund is completely risk-free. The level of safety depends on the underlying assets and the duration of the investment.
To start investing in mutual funds, you need to complete KYC, open an account with a mutual fund house or an investment platform, and choose a suitable scheme. Investments can be made as a lump sum or through a Systematic Investment Plan (SIP) based on your preference.
For a five-year investment horizon, a mix of equity and hybrid funds is often considered suitable. These funds have the potential to balance growth with moderate volatility over the medium term. The final choice depends on individual comfort with market fluctuations and return expectations.
