Types of Mutual Funds in India Explained with Examples (2025 Guide)
Types of mutual funds in India offer a diversified, professionally managed way to invest in financial markets, but with so many types of mutual funds available, how do you choose the right one? We are here to explore the various types of mutual funds available in India.
Mutual funds remain a cornerstone of investment portfolios in India. They offer a range of options to fit every investor’s risk needs and financial goals. With regulatory clarity and an ever-expanding collection of schemes, understanding the types of mutual funds in India is crucial for making knowledgeable investment choices in 2025.
Types of Mutual Funds in India
Mutual funds in India are mainly classified based on their assets and investment objectives. According to SEBI guidelines and industry practices, the major categories are:
Equity Mutual Funds
These mainly invest in shares of companies, aiming for capital appreciation. These are suitable for investors with a high-risk appetite and a long-term investment horizon. They are risky due to market fluctuations but offer higher return potential over time.
- Large-Cap Funds: In this equity mutual fund, investors invest in companies with large market capitalization, like the HDFC Top 100 Fund. This mutual fund also offers relative stability.
- Mid-Cap Funds: In this, investors invest in medium-sized companies with higher growth potential but also higher volatility, like HDFC Mid-Cap Opportunities, Motilal Oswal Mid-Cap Fund.
- Small-Cap Funds: Investors invest in small companies with significant growth potential but also with the highest risk, like Bandhan Small Cap Fund, Quant Small Cap Fund.
- Multi-Cap Funds: Here, investors invest across large, mid, and small-cap companies, providing diversification, like the Nippon India Multi-Cap Fund.
- Flexi-Cap Funds: In this equity mutual fund, investors have the flexibility to invest across market capitalizations without any predefined allocation limits, like JM Flexicap Fund, Parag Parikh Flexi Cap Fund.
- Sectoral/Thematic Funds: Here, investors invest in specific sectors or themes, like ICICI Prudential Infrastructure Fund, SBI Healthcare Opportunities Fund. These funds are highly concentrated and riskier for the investor.
- Equity-Linked Saving Schemes (ELSS): Here, the equity funds offer tax benefits under Section 80C of the Income Tax Act, with a mandatory 3-year lock-in period, like SBI Long Term Equity Fund, Nippon India ELSS Tax Saver Fund.
Debt Mutual Funds
These funds invest in fixed-income instruments like government bonds, treasury bills, corporate bonds, and commercial papers. They aim to provide stable returns and capital preservation, making them suitable for conservative investors aiming for predictable income.
- Liquid Funds: In this debt mutual fund, the investor invests in very short-term debt instruments, which are up to 91 days. They offer high liquidity and minimal risk, like Overnight Funds, UTI Dynamic Bond Fund.
- Gilt Funds: In this, the investor invests exclusively in government securities. They also offer high security but are subject to interest rate risk, like the UTI Dynamic Bond Fund.
- Ultra Short: Here, the investor invests in instruments with longer maturities than liquid funds, which are up to 3–6 months.
- Short Duration Funds: In this, the investor invests in debt instruments with maturities between one and three years, like HDFC Short Term Debt Fund, ICICI Prudential Short Term Fund.
- Credit Risk Funds: In this debt mutual fund, the investor invests in lower-rated corporate bonds, aiming for higher returns but carrying higher credit risk, like Nippon India Credit Risk Fund, Bank of India Credit Risk Fund.
- Corporate Bond Funds: In this, the investor invests mainly in bonds issued by corporations.
Hybrid Mutual Funds
These mutual funds are a combination of equity and debt in differing proportions to balance risk and reward. Sub-types include:
- Aggressive Hybrid Funds: In these hybrid funds, the investor mainly invests in equities (65–80%) with a smaller portion in debt (20–35%), like Quant Absolute Fund, ICICI Pru Equity & Debt Fund.
- Conservative Hybrid Funds: In these hybrid funds, the investor mainly invests in debt with a smaller portion in equities.
- Balanced Advantage Funds/Dynamic Asset Allocation Funds: Here, the investor can dynamically adjust their asset share between equity and debt based on market conditions.
- Multi-Asset Allocation Funds: In this, the investor invests in at least three different asset classes, such as equity, debt, and gold, like Quant Multi-Asset Funds.
You can watch our detailed video on the Types of Mutual Funds for full insights.
Difference Between Equity vs Debt Mutual Fund
Here are the differences between Equity vs Debt Mutual Funds in India
| Feature | Equity Mutual Funds | Debt Mutual Funds |
| Investment Focus | Focuses on company stocks/shares | Focuses on bonds, securities, and fixed-income |
| Return Potential | Potentially high, but volatile | Steady, moderate interest |
| Suitability | Wealth growth, risk-tolerant investors | Capital preservation, conservative |
| Risk Level | Higher, market-linked | Lower, more predictable |
| Ideal Horizon | Long-term | Short to medium term |
Also, Check - What is STP in Mutual Funds?
Conclusion
In conclusion, choosing the right mutual fund in India requires clarity on your financial goal, investment horizon, and risk tolerance. So, whether you prefer the growth potential of equity funds or the stability of debt instruments, we hope this blog has been helpful to you.
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