Types of Mutual Funds

• Mutual funds are of different types based on:
  • Fund Schemes
  • Managements of Funds
  • Assets invested in
  • Investment Objective
  • Mode of investment
  • ELSS
  • International funds

Fund Schemes

• Open Ended
  • Invest and Exit anytime
• Close Ended
  • Invest during NFO, Hold till maturity
• Interval Funds

Management of Funds

• Active funds
  • The fund manager has more involvement in the decision-making,
  • Is more active in looking after which stocks and bonds go in and out of a mutual fund portfolio and when
  • Eg: Axis Small Cap Fund
• Passive funds
  • The fund manager cannot decide the movement of the underlying assets.
  • It will follow the same index and has the exact weight of the stocks.
  • Eg: Navi Nifty 50 Index Fund

Assets invested in

• Equity funds
  • Index funds
  • Sectoral funds
  • Eg: Axis Small Cap Fund
• Debt funds
  • Overnight funds
  • Liquid funds
  • Ultra short term funds
  • Short term funds
  • Eg: ICICI Pru Liquid Fund
• Hybrid funds
  • Navi Equity Hybrid Fund

Investment Objective

• Growth
• Dividend
• Dividend Re-invested

Mode of investment

• Regular plan
  • Regular funds are those mutual funds that are bought through a mutual fund broker, distributor, or advisor.
  • Return is slightly less than Direct plan
• Direct plan
  • Mutual funds that are directly purchased from an asset management company (AMC) are referred to as direct plans.
  • Return is slightly higher than Regular plan

Others types

• ELSS
• International funds
• Goal-based funds

Details Explanation

Debt

• Debt funds invest primarily in fixed-income securities such as bonds, securities and treasury bills
• G-Secs with maturity less than 1 year are called T-Bills (Treasury bills)
• Those greater than 1 year are called Bonds.
• Fund selection, who
  • Are backed by good financial institution
  • Has low Expense ratio
  • Has Low or Nil Exit
• Don’t see Trailing returns, See YTM return
  • So Return = YTM % - expense ratio%

Debt funds types based on investment-time

• Money market
  • Part of fixed-income
  • Maturity < 1yr
  • Eg: T-bills, Commercial-papers
• Call money market
  • Maturity < 1 day
  • Eg: Call-money
  • Overnight-funds invest here

# Based on matyrity they are further divided into
# Funds 	-- Matyrity
* Overnight 	-- All paper < 1 day
* Liquid 	-- All paper < 90 day
* Ultra 	-- Avg 6 < months
* Short 	-- Avg 12 < months
* Corp bond 	-- Avg 42 < months
* Credit Risk 	-- Avg 26 < months
* Gilt 		-- Avg 110 < months

# Credit Risk of various debt funds
# Funds 	-- Risk %
* Overnight 	-- 0% 
* Liquid 	-- 0%
* Ultra 	-- 5%
* Short 	-- 6%
* Corp bond 	-- 3%
* Credit Risk 	-- 26%
* Gilt 		-- 0%

Liquid Funds

• All paper maturity should be < 90 days
• Best Fund house
  • HDFC liquid funds
  • ICICI pru liquid funds
• Good for people who
  • Are in high tax bracket 20% - 30%
  • And so they can take TAX benefits
  • Have got Huge Corpus for short time < 1yrs
• Issue
  • Trailing Returns – 6% (Good)
  • But YTM Returns – 3.15% (Very low)
  • Bank FD and some saving account can give good return than this

Gilt

• Investment in Govt Securities
• Mainly depends on Interest rate cycle

# Trailing Returns(CAGR)
* 1 yr -- 11.5%
* 3 yr -- 8.5%
* 5 yr -- 10%

# Calender returns
* 2014 -- 19%
* 2015 -- 7%
* 2016 -- 16%
* 2017 -- 3.5%
* 2018 -- 5.5%
* 2019 -- 13%

• Issue
  • Trailing returns are good but Calendar return has high hick-up
  • For 3yr - 5yr investment –> Equity is better than Gilt

ELSS

• Equity Linked Savings Scheme popularly known as ELSS are close-ended
• They are Multi-Cap funds
• lock-in period of 3 years
• These types of funds are mainly chosen for Taxation Benefits.

Direct Plan vs Regular Plan

		# Direct 	# Regular
Expense ratio 	---> Lower 	- Higher (commission to the intermediary)
Advise/Guidance ---> No 	- Yes
NAV 		---> Higher 	- Lower
Convenience 	---> Less 	- More
Returns 	---> More 	- Less (As the AMC fee is more)

ETF

• Exchange Traded Funds
• ETF funds are listed on all major stock exchanges and
• Can be bought and sold as per requirement during the equity trading time.