Broadly, there are four categories of mutual funds available for investments in India. Equity funds invest primarily in the capital market, such as stocks and shares, offering growth potential but also higher risk. Debt funds allocate resources to the bond market, including government and corporate bonds as well as treasury bills, which generally provide stable returns and lower risk. Commodity funds focus on assets like gold and silver, allowing investors to gain exposure to precious metals. Lastly, hybrid funds are a combination of all three categories, balancing risk and return by mixing investments in equities, debts, and commodities.

EQUITY FUNDS

Now let’s discuss each category in detail. Starting with the Equity category, under this category we have broadly three sub-categories: Large Cap, Mid Cap, and Small Cap funds. There are more than 6,000 listed stocks on the BSE and NSE. The top 100 companies with the highest market capitalisation are called Large Cap stocks. The next 150 companies, ranked 101 to 250, fall under Mid Cap stocks, and the rest of the universe comprises Small Cap and Micro Cap stocks.
By using different combinations, funds are classified as Large and Mid Cap funds, Multicap funds, and Flexicap funds. The main difference between Flexicap and Multicap funds is the restriction in terms of allocation. In Flexicap funds, there is no restriction for the fund manager to deploy funds in any market cap segment. For example, a fund manager can invest 60% in Large Cap, 30% in Mid Cap, and 10% in Small Cap stocks. Whereas in Multicap funds, there is a minimum allocation requirement: at least 25% each must be invested in Large Cap, Mid Cap, and Small Cap stocks, and the remaining 25% can be allocated at the fund manager’s discretion.
Sectoral and Thematic funds are another set of options within equity funds. These are considered high-risk funds as they invest in a particular sector or industry. For example, a fund that invests only in energy-related stocks is called an Energy Sector fund. Similarly, a fund that invests exclusively in pharma or auto industry stocks is a sector-specific fund. Thematic funds, on the other hand, have a slightly broader investment mandate. For instance, a Healthcare thematic fund can invest in pharma companies, hospitals, and diagnostic firms. Likewise, a Manufacturing thematic fund may include investments in auto, electronics goods, and machinery companies. These funds allow investors to tap into specific growth stories but come with higher risk due to their concentrated exposure.

In addition to the above, another notable category within equity-oriented schemes is Global Funds. In these funds, the fund manager invests in stocks listed on foreign exchanges, either across various countries or focused on a single nation such as the US or Japan. This allows Indian investors to diversify geographically and benefit from international market trends and growth opportunities.

DEBT Funds

Now let’s move on to the next category, which is Debt Funds. Debt funds are further classified based on the maturity period of the investment vehicles, such as Overnight, Liquid, Money Market, Low Duration, Short Duration, Medium Duration, and Long Duration funds. The longer the duration, the higher the sensitivity to interest rate changes set by the Reserve Bank of India (RBI). For instance, when the interest rate is reduced by 50 basis points by RBI, low duration funds are less affected, whereas long duration funds experience a reduction in yield.

Debt funds can also be categorised based on the quality of the underlying instrument. They include Corporate Bond Funds and Credit Risk Funds. Credit Risk Funds carry higher risk compared to Corporate Bond Funds as they invest a portion of their assets in lower-rated papers to earn higher yields. On the other hand, Corporate Bond Funds invest primarily in AAA, AA, or A+ rated bonds, offering stability and a low probability of default.
For investors seeking short-term options with a tenure of 3-6 months, Liquid Funds are considered very safe. Individuals looking for an investment horizon of 12-24 months may consider Low Duration or Money Market Funds, which offer a balanced risk-return profile for such periods.

Commodity Funds

The funds which invest money into gold are known as gold savings mutual funds. Similarly, funds which invest money into silver are categorised as silver funds. There are also combination funds available that invest in both gold and silver within a single scheme, offering broader exposure to precious metals. The NAV (Net Asset Value) of such funds is directly linked to the prevailing gold and silver rates in the market. For example, when the fund is launched, its NAV—say, ₹10—is matched with the gold or silver price on that particular day. As the price of the underlying commodity increases, the NAV of the fund rises accordingly; conversely, if the price drops, the NAV will also decrease proportionately.
This structure provides investors with an easy and transparent way to gain exposure to commodities, serving as an alternative to physically holding gold or silver. Investing in gold and silver funds not only aids portfolio diversification but also brings several advantages: higher liquidity compared to physical metal, no risk of theft, and avoidance of making or wastage charges typically associated with jewellery. Thus, these funds offer a convenient and efficient means for investors to participate in the commodity markets while mitigating some of the practical challenges of physical ownership.

HYBRID FUNDS

As the name suggests, Hybrid Funds are a mix of Equity, Debt, and Commodity assets. There are around 10-15 different categories available under hybrid funds, providing fund managers with flexibility to classify them further based on the level of risk and allocation to equity and debt instruments.
Starting with the conservative category, Arbitrage Funds are considered low-risk, low-return options. In these funds, money is simultaneously invested into indices like NSE and BSE to capture the small price differences arising with market movements, whether the prices are rising or falling.
The next category is Equity Savings Funds, which invest in a mix of arbitrage opportunities, stocks, and debt instruments, thereby balancing risk and return. Conservative Hybrid Funds invest the majority (typically more than 50-60%) in debt, with the remainder in equity instruments, making them suitable for investors seeking lower risk.
On the other end of the spectrum, Aggressive Hybrid Funds allocate a larger portion (about 60-70%) to equities and the rest to debt, with periodic rebalancing to maintain the desired asset allocation.
Balanced Advantage Funds offer dynamic asset allocation between equity and debt. The proportion can vary, for instance, from as low as 20% to as high as 80% in equity, with the remainder invested in debt instruments. This ratio is actively managed and adjusted based on prevailing market cycles.
Multi Asset Funds are gaining popularity as they invest across Equity, Debt, Gold, Silver, and in some cases, even global stocks. These are often promoted as “all-weather” investments because they seek to capture the momentum of equity, commodity, and bond markets simultaneously.
Investors should choose hybrid funds according to their own risk appetite, investment horizon, and the tax implications of each category.

Thank you for reading for any feed backs or suggestion please do reach us on support@arthikaswatanthra.com

Disclaimer – Mutual Fund investments are subject to market risk, please read the offer document carefully before investing. The Article is for investor education purpose only