Mutual funds are professionally managed investment vehicles that pool money from multiple investors and invest in a diversified portfolio of securities such as equities, debt instruments, or a mix of both. With over ₹50 lakh crore in assets under management (AUM) in India as of 2025, mutual funds have become one of the most accessible and efficient ways to build long-term wealth.
However, understanding the types of mutual funds is essential before investing. Each type of fund caters to different goals, risk appetites, and time horizons. In this blog, we’ll cover the classification of mutual funds based on three main criteria:

1. Based on Asset Class

2. Based on Structure

3. Based on Investment Objective

1)Classification Based on Asset Class
This categorization is based on the kind of securities the fund invests in—equity, debt, or both.
a. Equity Mutual Funds
Equity funds invest a majority of the pooled money into stocks or shares of companies listed on stock exchanges. These funds aim to generate higher returns by participating in the growth of businesses.
Key Characteristics:

• High return potential but also higher volatility.

• Best suited for long-term goals like retirement or wealth creation.

• Offers sectoral, diversified, or thematic exposure.

Types of Equity Funds:

• Large Cap Funds – Invest in large, stable companies with strong track records.

• Mid Cap Funds – Invest in mid-sized companies with higher growth potential.

• Small Cap Funds – Invest in smaller companies; higher risk, higher reward.

• Multi Cap Funds – Diversified across large, mid, and small cap companies.

• Thematic or Sectoral Funds – Invest in specific sectors like pharma, tech, or banking.

 b. Debt Mutual Funds
Debt funds primarily invest in fixed-income instruments such as government securities, corporate bonds, treasury bills, commercial papers, etc. These funds offer capital preservation and stable income with lower risk than equity funds.
Key Characteristics:

• Suitable for short to medium-term goals.

• Preferred by conservative investors.

• Returns depend on interest rate movements and credit quality.

Types of Debt Funds:

• Liquid Funds – Ideal for parking surplus cash for very short durations.

• Short Duration Funds – Invest in securities with a short maturity period.

• Corporate Bond Funds – Focus on high-rated corporate debt.

• Gilt Funds – Invest only in government securities; free from credit risk.

c. Hybrid Mutual Funds
Hybrid funds are a combination of equity and debt investments, offering a balance between risk and return. The equity-debt allocation is based on the fund’s objective.
Key Characteristics:

• Suitable for moderate-risk investors.

• Offer diversification across asset classes.

• Some are dynamically managed based on market conditions.

Types of Hybrid Funds:

• Aggressive Hybrid Funds – 65–80% in equity and the rest in debt.

• Conservative Hybrid Funds – Mostly debt with some equity exposure.

• Balanced Advantage Funds (BAF) – Adjusts equity-debt mix dynamically.

2)Classification Based on Structure
This refers to the liquidity and investment duration flexibility offered by the fund.
 a. Open-Ended Mutual Funds
Open-ended funds do not have a fixed maturity. You can buy or redeem units anytime based on the prevailing Net Asset Value (NAV).
Benefits:

• High liquidity

• Ideal for long-term investing

• Allows SIP (Systematic Investment Plan)

 b. Close-Ended Mutual Funds
Close-ended schemes have a fixed tenure and can only be purchased during the New Fund Offer (NFO) period. Post NFO, they are listed on stock exchanges.
Benefits:

• Encourages disciplined investing

• Locked-in investment helps fund managers implement long-term strategies

 c. Interval Funds
Interval funds are a hybrid between open and close-ended funds. They are open for buying or selling only at specific intervals decided by the fund house.
Benefits:

• Structured investment with limited liquidity

• Suitable for investors who don't need frequent access to their money

3️) Classification Based on Investment Objectives
These funds are designed with specific goals or tax-saving benefits.
a. ELSS (Equity Linked Savings Scheme)
ELSS is a tax-saving mutual fund under Section 80C of the Income Tax Act. It invests predominantly in equities and comes with a 3-year lock-in.
Benefits:

• Tax deduction up to ₹1.5 lakh

• Shortest lock-in among all tax-saving instruments

• Potential for long-term wealth creation

 b. Index Fund
These are passive mutual funds that replicate a market index like Nifty 50 or Sensex.
Benefits:

• Low-cost investing

• Market-matching returns

• Ideal for long-term investors seeking low expense ratios

c. Solution-Oriented Mutual Funds
These funds are created for specific life goals like retirement or children’s education/marriage. They come with a lock-in of 5 years or until the goal is met.
Benefits:

• Goal-based financial planning

• Encourages long-term investing

• Professionally managed with suitable asset allocation

4️) Other Specialized Mutual Funds
 a. International Funds
These invest in overseas equity or debt markets. A good way to gain global diversification and exposure to international companies.
b. Fund of Funds (FoF)
FoFs invest in other mutual fund schemes rather than directly in securities. They offer diversification across fund houses, geographies, and asset classes.

Conclusion
With a variety of mutual funds available in India, it’s important to choose one that aligns with your financial goals, risk tolerance, and investment horizon. Whether you're planning for short-term stability or long-term wealth, mutual funds provide flexibility and diversification like no other instrument.
Start by identifying your goals → Understand your risk profile → Choose the right type of mutual fund → Stay invested for the long term.