Mutual funds offer several options to generate wealth over a period. An investor can choose a plan that fits in with their savings and long-term financial goals. Markets regulator the Securities and Exchange Board of India (SEBI) has classified certain mutual funds based on their specialty. Such specialty funds include:
Sector funds: These funds focus on a single sector or an industry. To cite an example, a pharmaceutical fund will invest only in pharma companies. With such a fund, returns and risk follow prevailing industry patterns; and fund performance is tied to sector prospects.
Index funds: It is a type of mutual fund or exchange-traded fund that tracks and replicates the movement and returns of the financial market index. For example, buying shares that are representative of the NSE Nifty or the BSE Sensex.
Fund of Funds (FoFs): These funds invests in other mutual funds. Their performance depends on the performance of the mutual funds in which investments have been made.
Emerging market funds: Emerging markets refer to the 20-plus countries that are part of the Morgan Stanley Capital International (MSCI) Emerging Market index, which includes China, India, South Korea, Brazil, Russia, Taiwan, and South Africa. Typically, emerging market funds invest in developing countries that show good developmental prospects for the future. However, the risks involved are higher due to the shifting political and economic situations prevailing within such a country.
International funds: Also known as foreign funds, these offer investments in companies located in other parts of the world. Such companies or business entities could also be located in emerging economies.
Global funds: These funds invest in companies anywhere in the world. They can also invest in their country of registration.
Real estate funds: As the name suggests, these funds invest in real estate sector companies – in realtors, builders, property management companies and housing loan companies.
Exchange-traded funds (ETFs): These are funds that are a mix of both open- and close-ended mutual funds and are traded on stock markets. These funds are not actively managed; they are passively managed, and have the potential to offer lots of liquidity.
Rajiv is an independent editorial consultant for the last decade. Prior to this, he worked as a full-time journalist associated with various prominent print media houses. In his spare time, he loves to paint on canvas.