Open ended -
These are schemes that do not have a fixed maturity. The mutual fund ensures liquidity by announcing sale and repurchase price for the unit of an open-ended fund.
Close Ended -
These are schemes that have a fixed maturity. The money of the investor is locked in for the period. Occasionally, closed-end schemes provide a re-purchase option to the investors, either for a specified period or after a specified period. Liquidity in these schemes is provided through listing in a stock market.
By Investment Objective
Equity Schemes -
Equity schemes primarily invest in shares. Based on the objective, investments could be in growth stocks where earnings growth is expected to be high or value stocks where the view of the fund manager is that current valuations in the markets do not reflect the intrinsic value. Various kinds of equity schemes are:
These funds provide you the benefit of diversification by investing in companies spread across sectors and market capitalisation. They are generally meant for investors who seek exposure across the market and do not want to be restricted to any particular sector.
These funds invest primarily in equity shares of companies in a particular business sector or industry. While these funds may give higher returns, they are riskier as compared to diversified funds. Investors need to keep a watch on the performance of those sectors/industries and must exit at an appropriate time.
These funds invest in the same pattern as popular stock market indices like CNX Nifty Index and S&P BSE Sensex. The value of the index fund varies in proportion to the benchmark index. NAV of such schemes rise and fall in accordance with the rise and fall in the index. This would vary as compared with the benchmark owing to a factor known as "tracking error".
ELSS (Equity Linked Savings Scheme)
Equity Linked Saving Scheme is an open-ended equity growth scheme that is offered by mutual funds in line with existing ELSS guidelines. The investments under this type of scheme are subject to a lock-in period of 3 years and, as per the Finance Act 2005, are allowed the benefit of income deduction up to Rs. 1,00,000. ELSS offers the benefits of tax saving and capital gains. You can now invest the entire limit of Rs. 100,000 available under Sec 80C in ELSS.
Advantages of ELSS
Invests in : Equity and equity related securities.
Section 80 C : Tax benefits on investment up to Rs. 1 Lacs.
Lock in Period : 3 years ( Lowest in all Tax Saving Instruments)
Returns : High Potential
Dividend : Tax Free
Tax Liability : Nil as redemption happens after 3 Years.
SIP : Flexibility to invest in small amounts through SIP
DEBT or Income Schemes
Such a fund invests in interest bearing securities mainly government securities and corporate bonds. This fund earns returns for its investors from interest income on its investments and profits on trading securities. In terms of risk, this type of fund is less risky.
Money Market Schemes
These schemes invest in short term debt instruments issued by the government, corporate or banks. These are typically investments in short term papers like the CPs and CDs etc.
Balanced schemes invest in a mix of equity and debt. The debt investments ensure a basic interest income, which the fund manager hopes to top with a capital gain from the investment in equities. However loses can eat into basic interest income and capital.
Monthly Income Plans
MIPs are suitable for conservative investors who along with an exposure to debt do not mind a small exposure to equities. These funds aim to provide consistency in returns by investing a major part of their portfolio in debt market instruments with a small exposure to equities. Thus an MIP would be suitable for conservative investors who along with protection of capital seek some capital appreciation as MIPs have an exposure to equities. However the monthly income is not assured.
Systematic Investment Plan (SIP)
SIP is a convenient way to accumulate wealth in a disciplined manner over a long-term period. It helps you to invest fixed amount regularly in small installments and thereby build wealth over a period of time.
Systematic Withdrawal Plan (SWP)
In this plan, the investor withdraws fixed amount of money periodically. SWP is a mirror image of SIP. Just as investors do not want to buy all their units at a market peak, they do not want all their units redeemed in a market trough. Investors can therefore opt for the safer route of offering for repurchase, a constant value of units.
Systematic Transfer Plan (STP)
It is a combination of SWP and SIP. It is an SWP from an existing scheme and an SIP (sweep in) into another scheme of the same Mutual Fund.
Advantages of SIP
Power of Compounding
SIP helps you to start investing at an early age to meet the greater expenses of your life. Saving a small sum of money regularly makes money work with greater power of compounding with significant impact on wealth accumulation.
Rupee Cost Averaging
SIP minimizes the effects of investing in volatile markets. It helps you average out your cost by generating superior returns in the long run. It reduces the risk associated with lump sum investments. Since you get more units when the NAV drops and fewer when it rises, the cost averages out over time Thus, the average cost of your investment is often reduced.
Convenience and Regularity
SIP gives you the convenience to pay through Syndicate Bank Electronic clearance service (ECS) or Auto Debit or Standing Instructions. You can decide the amount and the mutual fund scheme. A fixed amount will automatically get debited from your account on a date specified by you.
Disciplined approach towards investment
Since you invest regularly, it makes you disciplined in your savings, which leads to wealth accumulation. Disciplined investing is vital to earning good returns over a longer time frame