Schemes according to Maturity Period:

A mutual fund scheme can be classified into open-ended scheme or close-ended scheme
depending on its maturity period.

Open-ended Fund

An open-ended Mutual fund is one that is available for subscription and repurchase on a continuous
basis. These Funds do not have a fixed maturity period. Investors can conveniently buy and sell
units at Net Asset Value (NAV) related prices which are declared on a daily basis. The key feature of
open-end schemes is liquidity.

Close-ended Fund

A close-ended Mutual fund has a stipulated maturity period e.g. 5-7 years. The fund is open for
subscription only during a specified period at the time of launch of the scheme. Investors can invest in
the scheme at the time of the initial public issue and thereafter they can buy or sell the units of the
scheme on the stock exchanges where the units are listed. In order to provide an exit route to the
investors, some close-ended funds give an option of selling back the units to the mutual fund through
periodic repurchase at NAV related prices. SEBI Regulations stipulate that at least one of the two exit
routes is provided to the investor i.e. either repurchase facility or through listing on stock exchanges.
These mutual funds schemes disclose NAV generally on weekly basis.

Fund according to Investment Objective:

A scheme can also be classified as growth fund, income fund, or balanced fund considering its
investment objective. Such schemes may be open-ended or close-ended schemes as described
earlier. Such schemes may be classified mainly as follows:

Growth / Equity Oriented Scheme

The aim of growth funds is to provide capital appreciation over the medium to long- term. Such
schemes normally invest a major part of their corpus in equities. Such funds have comparatively high
risks. These schemes provide different options to the investors like dividend option, capital
appreciation, etc. and the investors may choose an option depending on their preferences. The
investors must indicate the option in the application form. The mutual funds also allow the investors to
change the options at a later date. Growth schemes are good for investors having a long-term outlook
seeking appreciation over a period of time.

Income / Debt Oriented Scheme

The aim of income funds is to provide regular and steady income to investors. Such schemes
generally invest in fixed income securities such as bonds, corporate debentures, Government
securities and money market instruments. Such funds are less risky compared to equity schemes.
These funds are not affected because of fluctuations in equity markets. However, opportunities of
capital appreciation are also limited in such funds. The NAVs of such funds are affected because of
change in interest rates in the country. If the interest rates fall, NAVs of such funds are likely to
increase in the short run and vice versa. However, long term investors may not bother about these
fluctuations.

Balanced Fund

The aim of balanced funds is to provide both growth and regular income as such schemes invest both
in equities and fixed income securities in the proportion indicated in their offer documents. These are
appropriate for investors looking for moderate growth. They generally invest 40-60% in equity and
debt instruments. These funds are also affected because of fluctuations in share prices in the stock
markets. However, NAVs of such funds are likely to be less volatile compared to pure equity funds.
Money Market or Liquid Fund

These funds are also income funds and their aim is to provide easy liquidity, preservation of capital
and moderate income. These schemes invest exclusively in safer short-term instruments such as
treasury bills, certificates of deposit, commercial paper and inter-bank call money, government
securities, etc. Returns on these schemes fluctuate much less compared to other funds. These funds
are appropriate for corporate and individual investors as a means to park their surplus funds for short
periods.

Gilt Fund

These funds invest exclusively in government securities. Government securities have no default risk.
NAVs of these schemes also fluctuate due to change in interest rates and other economic factors as
is the case with income or debt oriented schemes.

Index Funds

Index Funds replicate the portfolio of a particular index such as the BSE Sensitive index, S&P NSE 50
index (Nifty), etc These schemes invest in the securities in the same weightage comprising of an
index. NAVs of such schemes would rise or fall in accordance with the rise or fall in the index, though
not exactly by the same percentage due to some factors known as "tracking error" in technical terms.
Necessary disclosures in this regard are made in the offer document of the mutual fund scheme.
There are also exchange traded index funds launched by the mutual funds which are traded on the
stock exchanges.

No matter what type of investor you are, there is bound to be a mutual fund that fits your style.
According to the last count there are more than 10,000 mutual funds in North America! That means
there are more mutual funds than stocks. (For more reading see Which Mutual Fund Style Index Is
For You?)

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It's important to understand that each mutual fund has different risks and rewards. In general, the
higher the potential return, the higher the risk of loss. Although some funds are less risky than
others, all funds have some level of risk - it's never possible to diversify away all risk. This is a fact for
all investments.

Each fund has a predetermined investment objective that tailors the fund's assets, regions of
investments and investment strategies. At the fundamental level, there are three varieties of mutual
funds:
1) Equity funds (stocks)
2) Fixed-income funds (bonds)
3) Money market funds

All mutual funds are variations of these three asset classes. For example, while equity funds that
invest in fast-growing companies are known as growth funds, equity funds that invest only in
companies of the same sector or region are known as specialty funds.

Let's go over the many different flavors of funds. We'll start with the safest and then work through
to the more risky.

Money Market Funds

The money market consists of short-term debt instruments, mostly Treasury bills. This is a safe place
to park your money. You won't get great returns, but you won't have to worry about losing your
principal. A typical return is twice the amount you would earn in a regular checking/savings account
and a little less than the average certificate of deposit (CD).

Bond/Income Funds
Income funds are named appropriately: their purpose is to provide current income on a steady basis.
When referring to mutual funds, the terms "fixed-income," "bond," and "income" are synonymous.
These terms denote funds that invest primarily in government and corporate debt. While fund
holdings may appreciate in value, the primary objective of these funds is to provide a steady
cashflow to investors. As such, the audience for these funds consists of conservative investors and
retirees. (Learn more inIncome Funds 101.) 

Bond funds are likely to pay higher returns than certificates of deposit and money market
investments, but bond 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 more risky 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.

Balanced Funds
The objective of these funds is to provide a balanced mixture of safety, income and capital
appreciation. The strategy of balanced funds is to invest in a combination of fixed income and
equities. A typical balanced fund might have a weighting of 60% equity and 40% fixed income. The
weighting might also be restricted to a specified maximum or minimum for each asset class.

A similar type of fund is known as an asset allocation fund. Objectives are similar to those of a
balanced fund, but these kinds of funds typically do not have to hold a specified percentage of any
asset class. The portfolio manager is therefore given freedom to switch the ratio of asset classes as
the economy moves through the business cycle.

Equity Funds
Funds that invest in stocks represent the largest category of mutual funds. Generally, the investment
objective of this class of funds is long-term capital growth with some income. There are, however,
many different types of equity funds because there are many different types of equities. A great way
to understand the universe of equity funds is to use a style box, an example of which is below.

The idea is to classify funds based on both the size of the companies invested in and the investment
style of the manager. The term value refers to a style of investing that looks for high quality
companies that are out of favor with the market. These companies are characterized by low P/E and
price-to-book ratios and high dividend yields. The opposite of value is growth, which refers to
companies that have had (and are expected to continue to have) strong growth in earnings, sales
and cash flow. A compromise between value and growth is blend, which simply refers to companies
that are neither value nor growth stocks and are classified as being somewhere in the middle.

For example, a mutual fund that invests in large-cap companies that are in strong financial shape but
have recently seen their share prices fall would be placed in the upper left quadrant of the style box
(large and value). The opposite of this would be a fund that invests in startup technology companies
with excellent growth prospects. Such a mutual fund would reside in the bottom right quadrant
(small and growth). (For further reading, check out Understanding The Mutual Fund Style Box.)

Global/International Funds
An international fund (or foreign fund) invests only outside your home country. Global funds invest
anywhere around the world, including your home country.

It's tough to classify these funds as either riskier or safer than domestic investments. They do tend to
be more volatile and have unique country and/or political risks. But, on the flip side, they can, as
part of a well-balanced portfolio, actually reduce risk by increasing diversification. Although the
world's economies are becoming more inter-related, it is likely that another economy somewhere is
outperforming the economy of your home country.

Specialty Funds
This classification of mutual funds is more of an all-encompassing category that consists of funds
that have proved to be popular but don't necessarily belong to the categories we've described so far.
This type of mutual fund forgoes broad diversification to concentrate on a certain segment of the
economy.

Sector funds are targeted at specific sectors of the economy such as financial, technology, health,
etc. Sector funds are extremely volatile. There is a greater possibility of big gains, but you have to
accept that your sector may tank.

Regional funds make it easier to focus on a specific area of the world. This may mean focusing on a
region (say Latin America) or an individual country (for example, only Brazil). An advantage of these
funds is that they make it easier to buy stock in foreign countries, which is otherwise difficult and
expensive. Just like for sector funds, you have to accept the high risk of loss, which occurs if the
region goes into a bad recession.

Socially-responsible funds (or ethical funds) invest only in companies that meet the criteria of certain
guidelines or beliefs. Most socially responsible funds don't invest in industries such as tobacco,
alcoholic beverages, weapons or nuclear power. The idea is to get a competitive performance while
still maintaining a healthy conscience.

Index Funds
The last but certainly not the least important are index funds. This type of mutual fund replicates the
performance of a broad market index such as the S&P 500 or Dow Jones Industrial Average (DJIA).
An investor in an index fund figures that most managers can't beat the market. An index fund merely
replicates the market return and benefits investors in the form of low fees. (For more on index
funds, check out our Index Investing Tutorial
Welcome to the Mutual Funds Resource Center

Types of mutual funds

Most funds have a particular strategy they focus on when investing. For instance, some invest only in
Blue Chip companies that are more established and are relatively low risk. On the other hand, some
focus on high-risk start up companies that have the potential for double and triple digit growth.
Finding a mutual fund that fits your investment criteria and style is important.

Types of mutual funds are:

Value stocks

Stocks from firms with relative low Price to Earning (P/E) Ratio, usually pay good dividends.
The investor is looking for income rather than capital gains.

Growth stock

Stocks from firms with higher low Price to Earning (P/E) Ratio, usually pay small dividends.
The investor is looking for capital gains rather than income.

Based on company size, large, mid, and small cap

Stocks from firms with various asset levels such as over $2 Billion for large; in between $2
and $1 Billion for mid and below $1 Billion for small.

Income stock

The investor is looking for income which usually come from dividends or interest. These
stocks are from firms which pay relative high dividends. This fund may include bonds which
pay high dividends. This fund is much like the value stock fund, but accepts a little more risk
and is not limited to stocks.

Index funds

The securities in this fund are the same as in an Index fund such as the Dow Jones Average
or Standard and Poor's. The number and ratios or securities are maintained by the fund
manager to mimic the Index fund it is following.

Enhanced index

This is an index fund which has been modified by either adding value or reducing volatility
through selective stock-picking.

Stock market sector

The securities in this fund are chosen from a particular marked sector such as Aerospace,
retail, utilities, etc.

Defensive stock
 The securities in this fund are chosen from a stock which usually is not impacted by
economic down turns.

International

Stocks from international firms.

Real estate

Stocks from firms involved in real estate such as builder, supplier, architects and engineers,
financial lenders, etc.

Socially responsible

This fund would invests according to non-economic guidelines. Funds may make investments
based on such issues as environmental responsibility, human rights, or religious views. For
example, socially responsible funds may take a proactive stance by selectively investing in
environmentally-friendly companies or firms with good employee relations. Therefore the
fund would avoid securities from firms who profit from alcohol, tobacco, gambling,
pornography etc.

Balanced funds

The investor may wish to balance his risk between various sectors such as asset size, income
or growth. Therefore the fund is a balance between various attributes desired.

Tax efficient

Aims to minimize tax bills, such as keeping turnover levels low or shying away from
companies that provide dividends, which are regular payouts in cash or stock that are
taxable in the year that they are received. These funds still shoot for solid returns; they just
want less of them showing up on the tax returns.

Convertible

Bonds or Preferred stock which may be converted into common stock.

Junk bond

Bonds which pay higher that market interest, but carry higher risk for failure and are rated
below AAA.

Mutual funds of mutual funds

This funds that specializes in buying shares in other mutual funds rather than individual
securities.

Closed end
 This fund has a fixed number of shares. The value of the shares fluctuates with the market,
but fund manager has less influence because the price of the underlining owned securities
has greater influence.

Exchange traded funds (ETFs)

Baskets of securities (stocks or bonds) that track highly recognized indexes. Similar to mutual
funds, except that they trade the same way that a stock trades, on a stock exchange.

Welcome to the Mutual Funds Resource Center

Mutual funds vs. other investments  Mutual funds vs. other

investments
From an investors' viewpoint mutual funds have several  Advantages of mutual
advantages such as: funds
 Disadvantages of
 Professional management and research to select quality mutual funds
securities
 Spreading risk over a larger quantity of stock whereas the investor has limited to buy only a
hand full of stocks. The investor is not putting all his eggs in one basket
 Ability to add funds at set amounts and smaller quantities such as $100 per month
 Ability to take advantage of the stock market which has generally out performed other
investment in the long run
 Fund manager are able to buy securities in large quantities thus reducing brokerage fees

However there are some disadvantages with mutual funds such as:

 The investor must rely on the integrity of the professional fund manager
 Fund management fees may be unreasonable for the services rendered
 The fund manager may not pass transaction savings to the investor
 The fund manager is not liable for poor judgment when the investor's fund loses value
 There may be too many transactions in the fund resulting in higher fee/cost to the investor -
This is sometimes call "Churn and Earn"
 Prospectus and Annual report are hard to understand
 Investor may feel a lost of control of his investment dollars
 There may be restrictions on when and how an investor sells/redeems his mutual fund
shares