On the Basis of  Specialty

On the basis of a specific sector, SEBI has categorized the following Mutual Funds as specialty funds:

A. Sector Funds

Sector Funds are designed to make investments in a particular sector only like the Production sector, Banking, Automobiles, IT, and pharma sector. Since these funds invest in specific and few securities, they are associated with high risk and high return factors. Investors should keep track of all the changing trends related to the sector to minimize the risk.

B. Index Mutual Funds

Index Mutual Funds are the types of mutual funds that track the securities and their corresponding ratio in the market index and make asset allocations accordingly. They are best for passive investors and require low management. Index mutual funds opt for an investment portfolio that is at least 95% similar to the index tracking result.

C. Funds of Funds

Funds of Funds also known as Multi-Manager Funds are designed to avail the benefits of diversified investment by investing in a single fund rather than investing in several. This means the Fund of funds invests in other mutual funds and the return depends on the performance of the target fund. Funds of Funds are considered safer as the portfolio is diversified and adjusted regularly by the managers to balance the risk.

D. Commodity Mutual Funds

Commodity Mutual Funds invest in physical commodities like gold, silver, oil, or agricultural products or invest in companies involved in their production, exploration, or distribution, with an aim to track the price movements of the underlying commodity. The return depends on the performance of the commodity or the company dealing in the commodity. This fund offers the benefits of diversified investment with a good return.

E. Inverse Funds

Inverse Funds Also known as Leveraged Funds is a sister of an Index fund. The difference between the two is that Index Fund makes asset allocations in accordance with the benchmark index, but inverse fund works in the opposite direction,i.e., it focuses on selling more securities when the value falls just to buy them again at more low cost and to hold them till the price of the security rises again.

Investing in mutual funds offers a gateway to diversifying your portfolio and achieving your financial goals with professional management. But with many types of mutual funds available, selecting the right one can be overwhelming. Understanding the different types of mutual funds—such as equity funds, bond funds, index funds, and money market funds—is essential for making informed investment decisions.

Let’s go through various mutual fund categories, their benefits, and how they can fit into your overall investment strategy. Whether you’re a seasoned investor or a beginner, discovering the best mutual fund types for your needs can help maximize returns and minimize risk. Read on to explore the diverse world of mutual funds and find the ideal investment options tailored to your financial objectives.

Mutual Funds can be categorized on the basis of types of securities opted, investment goals, risk factors, and so on.