If you’re confused about mutual funds, don’t worry. In this blog, we’ll explain the different types of mutual funds in India in a very simple way. No complex words, just plain explanations. We’ll also tell you who should invest in what, average returns, and why mutual funds are worth it.
Why Should You Invest in Mutual Funds?
- Easy to start: You can start investing with as low as Rs. 500/month through SIP.
- Professional management: Experts manage your money.
- Diversification: Your money is invested in many places, so the risk is reduced.
- Better returns than FD: Long-term returns are usually better than fixed deposits.
- Different options for different goals: Whether you want safety or high returns, there’s a fund for everyone.
Major Classifications of Mutual Funds in India
1. Based on Where Your Money is Invested
A. Equity Funds (Money goes to shares/stocks)
- High returns, high risk. Best for long-term goals.
- Good if you want to grow your money faster and can wait 5+ years.
Sub-types:
| Fund Type | Description | Avg Return | Risk Level | Who Should Invest |
|---|---|---|---|---|
| Large Cap Fund | Big, stable companies | 12-14% | Moderate | 25-45 years, first-time investor |
| Mid Cap Fund | Medium companies with growth potential | 14-17% | High | 30-50 years, some experience |
| Small Cap Fund | Small companies, very high growth | 16-20% | Very High | 35-55 years, high risk-taker |
B. Debt Funds (Money goes to bonds, loans, govt securities)
- Low risk, low returns. Best for short to medium-term.
Sub-types:
| Fund Type | Description | Avg Return | Risk Level | Who Should Invest |
| Liquid Fund | Very short term, safe | 5-6% | Very Low | 30-60 years, emergency fund |
| Corporate Bond | Loans to companies | 6-8% | Low | 35-65 years, regular income |
| Gilt Fund | Govt bonds | 6-7% | Low | 40-70 years, capital safety |
C. Hybrid Funds (Mix of Equity + Debt)
- Balanced returns and risk. Good for medium-term goals.
Sub-types:
| Fund Type | Description | Avg Return | Risk Level | Who Should Invest |
| Balanced Fund | 50-50 in stocks and bonds | 10-12% | Moderate | 30-50 years, moderate risk |
| Aggressive Hybrid | More stocks than bonds (like 70-30) | 12-14% | High | 25-45 years, long-term goal |
| Conservative Hybrid | More bonds than stocks (like 70-30) | 7-9% | Low | 35-60 years, steady growth |
2. Special Purpose Mutual Funds
These are created for specific goals or tax benefits.
A. ELSS (Equity Linked Saving Scheme)
- Tax saving fund under Section 80C.
- 3-year lock-in.
- High returns (12-15%)
- Good for people who want tax saving + long-term growth.
B. Index Funds
- Follow index like NIFTY/SENSEX.
- Low charges, returns similar to market.
- Good for beginners.
C. Sector Funds
- Invest in one sector like IT, Pharma, etc.
- High returns possible but risky.
- Good only if you know the sector well.
D. International Funds
- Invests in companies outside India.
- Good for global diversification.
E. Multi-Asset Funds
- Invests in equity, debt, gold.
- Good diversification in one fund.
F. Thematic Funds
- Focus on a particular theme like ESG (Environmental, Social, Governance), digital, etc.
- High risk, high return.
What Mutual Fund Should You Choose by Age?
| Age Group | Fund Type Recommended | Reason |
| 20-30 years | Equity, ELSS, Aggressive Hybrid | Long-term goals, wealth growth |
| 30-45 years | Equity + Hybrid + ELSS | Mix of growth and stability |
| 45-60 years | Conservative Hybrid + Debt + Gilt | Safe with some growth |
| 60+ years | Debt, Liquid, Monthly Income Funds | Capital protection, regular income |
Summary Table: Fund Type, Returns, and Suitability
| Category | Fund Name | Avg Return | Risk | Good For |
| Equity | Large, Mid, Small Cap | 12-20% | Medium-High | Young investors (25-45) |
| Debt | Liquid, Bond, Gilt | 5-8% | Low | Senior citizens, safety-first |
| Hybrid | Balanced, Aggressive | 10-14% | Medium | Mid-age, moderate risk |
| Special | ELSS, Index, Sector | 10-16% | Varies | Tax saving, specific goals |
Final Tips Before You Invest
- Set your goal: short-term, medium, or long-term.
- Know your risk capacity.
- Always check the fund’s past performance.
- Start with SIP if you are new.
- Don’t panic in market ups and downs.
Note: Past performance is not indicative of future results. Always consult with a financial advisor before making investment decisions., please read our Privacy Policy –
🧾 Additional Resources
- SEBI’s Introduction to Mutual Funds [PDF]
A comprehensive presentation covering the fundamentals of mutual funds. SEBI Investor - Groww’s List of All Mutual Fund Categories
Overview of mutual fund categories as per SEBI’s classification. Groww