There are six main types of mutual funds: money market funds, bond funds, hybrid funds, equity funds, sector funds, and index funds. Money market funds invest in low-risk, low-return money market securities. Bond funds invest in fixed income securities like government or corporate bonds. Hybrid funds invest in both bonds and equities. Equity funds invest solely in common stocks, with the goal of capital growth or income. Sector funds focus on specific industries. Index funds aim to match the performance of a market index at low cost. Mutual funds report returns as total returns including dividends and capital gains over time periods like one, five, or ten years. Regulations require mutual funds to appoint independent trustees and comply with

1. Types of Mutual Funds
Financial Markets

2. Major types of mutual funds
• There are two major types of mutual funds
– Money market mutual funds
– Stock funds and bond and income funds
Further mutual funds can classified on the basis of
risk and return

3. Types of mutual funds
• 1. Money market funds
– These funds invest in money market securities
– They are low risk and low return funds
– They provide the chance to earn the going rate in
the money market with diversification advantage

4. • 2. Bond Funds
– These fund specialize in fixed income sector
– Within bond funds, there exists many categories
– Funds may specialize in government bonds, or
corporate bonds
– Or they specialize in bonds of different maturities

5. • 3. Hybrid Funds (Balanced Funds)
• Includes both bonds and equity funds
• They are also called balanced funds
• The main objective is to preserve capital and
earn a return
• Have a bit higher risk than the bond funds
because of investment in equity

6. • 4. Equity funds
• All investment is made in common stocks
• Within equity funds, there can be growth funds
or income funds
• Growth funds have investment in stocks that
have good growth potential (usually small firms)
• Income funds have investment in stocks that
provide consistent flow of income(usually large
firms)

7. • 5. Sector funds
• Some industries perform well in one stage of
business cycle and others perform well in the
other stages of business cycle
• An investment company may have a mutual
fund that specialize in any one sector
• For example, a mutual fund may invest only in
oil stocks

8. • 6. Index funds
• An index fund tries to match the performance
of a broad market index
• The fund buys shares in securities in the
proportion to the security’s representation in
the index
• It is an unmanaged fund and hence a low cost
• Investors following passive strategy will invest
in index fund

9. Mutual Funds returns
• Mutual funds returns are expressed in total
returns i.e. dividends and capital gains as a
percentage of initial investment
• A cumulative total return measures the actual
performance over a stated period of time, 1
year, 3 years or 10 years
• For example, a fund gave returns:
• Past 1 year Past 5 Years Past 10 years
• -10% 8.5% 180.5%

10. Mutual Fund Regulations
• An Asset Management Company for every
open-end & closed-end mutual fund shall
appoint a trustee.
• A trustee shall be a schedule bank, a foreign
bank, an Investment company having
minimum A+ rating from credit rating agency
registered with the commission.
• A central depository company approved by
the commission can also be appointed as
trustee.

11. • The trustee should be independent of the
AMC.
• The trustee should carry out the instructions
of AMC in respect of investment unless they
are in conflict with the any provision of the
rules issued by the commission.
• Units or certificates of an open-end or closed-
end mutual fund shall not be offered to the
public unless the schemes approved by the
commission.

12. • Sale, purchase, issue and transfer of units
certificates affected by the open-end or closed
end schemes are carried out in accordance
with the provisions of constitutive documents.
• Open-end or closed-end mutual fund schemes
should meet the minimum investment criteria
specified by the commission under regulation
44(3)(e).
• Should maintain proper books of accounts.