Mutual Funds Schemes in India

February 14, 2024
Registrationwala

Mutual Funds Schemes in India

February 14, 2024

Registrationwala

The establishment of Unit Trust of India, in 1963, marked the evolution of the mutual funds industry in India. Back then, mutual fund wasn't very popular but now India's mutual funds industry outpaces global peers with 19% asset growth, leaving behind US, Japan and China.

A mutual fund is an investment fund which consists of a portfolio of stocks, bonds and other securities which are managed by a professional manager. Mutual funds are an attractive investment option for individuals who want to grow their wealth with minimal risks. Here are some benefits of mutual funds:

Diversification: Mutual funds pool money from various investors to invest in a diversified portfolio of stocks, bonds and other assets. Mutual funds reduce risks associated with investing in a single security since they spread investments across multiple assets.
Professional Management: Mutual funds are managed by skilled professional managers who conduct extensive research and analysis to pick securities that are in sync with the investment objectives of the fund.
Accessibility: Investors can access mutual funds even if they have limited investment knowledge or experience.
Liquidity: The investors can access their investments when needed, and buy or sell shares on any business day. They can also ask mutual fund distributors to do it for them.
Regulatory Authority: Mutual funds are regulated and supervised by Securities and Exchange Board of India (SEBI), which ensures that mutual funds maintain transparency with the investors.

Categorization and Rationalization of Mutual Fund Schemes

According to SEBI, the Mutual Funds Schemes are broadly classified into the following groups:

Equity Schemes
Debt Schemes
Hybrid Schemes
Solution Oriented Schemes
Other Schemes

Equity Schemes

Equity Fund refers to a mutual fund scheme that invests largely in shares of companies. As per SEBI, equity schemes are classified into 10 categories, the features of which, along with the uniform scheme description have been given below:

Category of Schemes	Scheme Attributes	Uniform Description of the Scheme
Large Cap Fund	Should invest 80% of total assets in equity and its related securities of large cap firms	An open-ended equity scheme that majorly invests in large cap stocks
Mid Cap Fund	Should invest 65% of total assets in equity and its related securities of mid cap firms	An open-ended equity scheme that majorly invests in mid cap stocks
Small Cap Fund	Should invest 65% of total assets in equity and its related securities of small cap firms	An open-ended equity scheme that majorly invests in small cap stocks
Multi Cap Fund	Should invest 65% of total assets in equity and its related securities	An open-ended equity scheme that majorly invests across large cap, mid cap, and small cap stocks
Large & Mid Cap Fund	Should invest 35% of total assets in equity and its related securities of large cap firms and 35% of total assets in equity and its related securities of mid cap firms	An open-ended equity scheme that majorly invests in both large cap and mid cap stocks
Dividend Yield Fund	Should invest majorly in dividend yielding stocks and at least 65% of total assets in equity	An open-ended equity scheme that majorly invests in dividend yielding stocks
Value Fund	Should follow a value investment strategy and invest 65% of total assets in equity and its related securities	An open-ended equity scheme following a value investment strategy
Contra Fund	Should follow a contrarian investment strategy and invest 65% of total assets in equity and its related securities	An open-ended equity scheme following a contrarian investment strategy
Sectoral/Thematic Fund	Should invest at least 80% of total assets in equity and its related securities of a particular theme or sector	An open-ended equity scheme investing in (name of the theme or sector)
Focused Fund	Should invest 65% of total assets in equity and its related securities. Should focus on the number of stocks (a maximum of 30 stocks)	An open-ended equity scheme investing in a maximum of 30 stocks (mention where the scheme intends to focus, viz., multi cap, large cap, mid cap, small cap)
ELSS	Should invest 80% of total assets in equity and its related securities (in accordance with Equity Linked Saving Scheme 2005 notified by the Ministry of Finance)	An open-ended equity-linked savings scheme with a statutory lock-in of 3 years and tax benefits

Debt Schemes

A debt fund is a mutual fund scheme which primarily invests in fixed income instruments, such as Corporate and Government Bonds, corporate debt securities, and money market instruments that offer capital appreciation. As per SEBI, debt schemes are classified into 16 categories:

Category of Schemes	Scheme Attributes	Uniform Description of the Scheme
Low Duration Fund	Should invest in debt and money market securities so that the Macaulay duration of the portfolio is between 6 months and 12 months	An open-ended low duration debt scheme investing in securities with Macaulay duration between 6 months and 12 months
Ultra Short Duration Fund	Should invest in debt and money market securities so that the Macaulay duration of the portfolio is between 3 months and 6 months	An open-ended ultra short-term debt scheme investing in securities with Macaulay duration between 3 months and 6 months
Liquid Fund	Should invest in debt and money market securities having a maturity of up to 91 days only	An open-ended liquid scheme
Overnight Fund	Should invest in overnight securities with a maturity of 1 day	An open-ended debt scheme investing in overnight securities
Short Duration Fund	Should invest in debt and money market securities so that the Macaulay duration of the portfolio is between 1 year and 3 years	An open-ended short-term debt scheme investing in securities with Macaulay duration between 1 year and 3 years
Medium Duration Fund	Should invest in debt and money market securities so that the Macaulay duration of the portfolio is between 3 years and 4 years	An open-ended medium-term debt scheme investing in securities with Macaulay duration between 3 years and 4 years
Money Market Fund	Should invest in money market securities with maturity of up to 1 year	An open-ended debt scheme investing in money market securities
Medium to Long Duration Fund	Should invest in debt and money market securities so that the Macaulay duration of the portfolio is between 4 years and 7 years	An open-ended medium-term debt scheme investing in securities with Macaulay duration between 4 years and 7 years
Long Duration Fund	Should invest in debt and money market securities so that the Macaulay duration of the portfolio is more than 7 years	An open-ended debt scheme investing in securities with Macaulay duration of more than 7 years
Corporate Bond Fund	Should invest 80% of total assets in highest rated corporate bonds	An open-ended debt scheme investing in the highest rated corporate bonds
Dynamic Bond Fund	Should invest across duration	An open-ended dynamic debt scheme investing across duration
Banking & PSU Fund	Should invest 80% of total assets in debt securities of banks, public sector undertakings, and public financial institutions	An open-ended debt scheme investing in debt securities of banks, public sector undertakings, and public financial institutions
Credit Risk Fund	Should invest 65% of total assets in the below highest rated corporate bonds	An open-ended debt scheme investing in below highest rated corporate bonds
Floater Fund	Should invest 65% of total assets in floating rate instruments	An open-ended debt scheme predominantly investing in floating rate instruments
Gilt Fund	Should invest 80% of total assets in government securities	An open-ended debt scheme investing in government securities across maturity
Gilt Fund with 10 year Constant Duration	Should invest 80% of total assets in government securities so that the portfolio's Macaulay duration is 10 years	An open-ended debt scheme investing in government securities that have a constant maturity of 10 years

Hybrid Schemes

A hybrid fund is a classification of a mutual fund that invests in different types of assets to form a diversified portfolio. SEBI classifies hybrid schemes into 6 categories. Fund houses are only allowed to offer either a balanced hybrid fund or an aggressive hybrid fund, not both.

Category of Schemes	Scheme Attributes	Uniform Description of the Scheme
Balanced Hybrid Fund	Should invest between 40% and 60% of total assets in equity and its related securities	An open-ended balanced scheme investing in equity and debt securities
Aggressive Hybrid Fund	Should invest between 65% and 80% of total assets in equity and its related securities; should invest between 20% and 35% of total assets in debt securities	An open-ended hybrid scheme investing in equity and debt securities
Conservative Hybrid Fund	Should invest between 10% and 25% of total assets in equity and its related securities; should invest between 75% and 90% of total assets in debt securities	An open-ended hybrid scheme investing mainly in debt securities
Dynamic Asset Allocation or Balanced Advantage Fund	Should invest in dynamically managed equity or debt securities	An open-ended dynamic asset allocation fund
Multi-Asset Allocation Fund	Should invest in a minimum of three asset classes with a minimum allocation of 10% in each asset class	An open-ended scheme investing in (names of the asset classes)
Equity Savings	Should invest at least 65% of the total assets in equity and its related securities and at least 10% of total assets in debt securities	An open-ended scheme investing in equity, arbitrage, and debt
Arbitrage Fund	Should follow arbitrage strategy and invest at least 65% of total assets in equity and its related securities	An open-ended scheme investing in arbitrage opportunities

Solution Oriented Schemes

Solution oriented schemes are usually closed-ended mutual funds, wherein the investment remains locked in for five years. They’re ideal for those who have a specific goal such as a child's education or retirement planning. SEBI classifies Solution oriented schemes into 2 categories:

Scheme Category	Scheme Attributes	Uniform Description of the Scheme
Children's Fund	Lock-in period for at least 5 years or till the child attains majority age, whichever is earlier	An open-ended fund for investment for children with a lock-in period for a minimum of 5 years or until the child reaches majority age, whichever is earlier
Retirement Fund	Lock-in period of at least 5 years or till retirement age, whichever is earlier	An open-ended retirement solution-oriented scheme with a lock-in period of 5 years or till retirement age (whichever is earlier)

Other schemes

SEBI classifies other schemes into two categories:

Scheme Category	Scheme Attributes	Uniform Description of the Scheme
Index Funds/ETFs	Should invest at least 95% of total assets in securities of a particular index	An open-ended scheme tracking/replicating (name of the index)
Fund of Funds (Overseas or Domestic)	Should invest at least 95% of total assets in the underlying fund	An open-ended fund of fund scheme investing in (name of the underlying fund)

For more details, you can check out the circular of SEBI.

How to Invest

Investors can buy mutual fund shares from the funds directly or authorized mutual fund distributors that possess mutual fund distributor license. When investors purchase shares of a mutual fund, they pay a price which consists of the net asset value per share of the fund, plus any additional fees charged at the time of purchase, like sales loads. Investors can sell the shares back to the fund at any time, and the money for the shares sold gets transferred to your bank account within a week normally.

Conclusion

Investment is an excellent idea for those who want to increase their wealth. Mutual fund is one of the most popular ways to invest your money, and it can offer you great returns. There are many types of mutual funds, and you can pick the one you like after doing your research. You can also get it in touch with an authorized mutual funds advisor to help you out.