The Mutual Funds can be broadly classified as Open ended funds and Closed ended funds.
Open Ended Funds : Funds under this category can be bought and redeemed at any point of time. There is no lock-in or maturity period attached to such funds. Following are sub categories of Open ended funds:
Debt/Income Funds : Major part of investment in this type of fund is channelized to debentures, government securities and other debt instruments. The capital appreciation is low in this type of fund and it best suits investors who prefer steady returns with low risk.
Money Market / Liquid Fund: This will suit investors who have surplus funds to be invested for a very short period of time on securities such as US Treasury bills and commercial paper with capital protection. The investment is done in the short-term debt instrument.
Equity / Growth : Investors having appetite to take higher risk with a long term investment perspective will go for these funds. This is most popular as there is huge potential for capital appreciation. Index Scheme,Sectoral Scheme,Tax Saving Scheme are some of the popular investment destination in this type of fund.
Balanced Fund : Investment under this type of fund is done both in Equity and Debt instrument to strike a balance between growth and regular income. This suits investors who would like to be aggressive without taking too much risk.
Closed Ended Funds : Investment under this category can be done only during the initial launch. It has a stipulated maturity period and assurance of capital protection.Capital Protection Funds and Fixed Maturity Plans are sub categories of Closed Ended Funds.