September 22, 2026
Types of Mutual Funds in India Explained
With thousands of schemes available, choosing a mutual fund can feel overwhelming. The good news is that SEBI groups all open-ended schemes into clear categories, so every fund belongs to a defined type with a defined investment approach. Once you understand these types, it becomes much easier to pick funds that suit your goals.
1. Equity mutual funds
Equity funds invest mainly in shares of companies. They have the potential for higher long-term growth but also carry higher short-term volatility, so they are best suited for goals that are five years or more away.
- Large cap funds — invest mainly in the top 100 companies by market capitalisation; relatively more stable among equity funds.
- Mid cap funds — invest in companies ranked 101 to 250; higher growth potential with higher risk.
- Small cap funds — invest in companies ranked 251 onwards; the most volatile of the three.
- Flexi cap and multi cap funds — invest across large, mid and small companies.
- ELSS (tax-saving) funds — equity funds with a 3-year lock-in that offer a tax deduction under the old tax regime. Read our ELSS guide.
- Sectoral and thematic funds — focus on a single sector (such as banking or pharma) or a theme (such as infrastructure or consumption); concentrated and higher risk.
- Value, contra, focused and dividend yield funds — follow a specific investment style.
2. Debt mutual funds
Debt funds invest in fixed-income instruments such as government securities, treasury bills, corporate bonds and money market instruments. They aim for relatively stable returns and are generally used for short- to medium-term goals or for parking surplus money.
- Overnight and liquid funds — very short maturity; often used as an alternative for emergency funds and short-term parking.
- Ultra short, low and short duration funds — for horizons of a few months to a few years.
- Corporate bond and banking & PSU funds — invest mainly in high-rated bonds of companies, banks and public sector undertakings.
- Gilt funds — invest in government securities; no default risk but sensitive to interest rate changes.
Debt funds are not risk-free: they carry interest rate risk and credit risk, so check the portfolio quality and duration before investing.
3. Hybrid mutual funds
Hybrid funds invest in a mix of equity and debt (and sometimes gold or other assets) to balance growth and stability.
- Conservative hybrid — mostly debt with a small equity portion.
- Aggressive hybrid — mostly equity with some debt.
- Balanced advantage / dynamic asset allocation — changes the equity–debt mix based on market conditions.
- Multi asset allocation — invests in at least three asset classes, such as equity, debt and gold.
- Arbitrage and equity savings funds — use hedged equity positions to aim for lower volatility.
4. Index funds and ETFs
Index funds and exchange traded funds (ETFs) are passive funds that simply replicate a market index such as the Nifty 50 or Sensex. Because there is no active stock selection, they usually have lower expense ratios. Their returns closely follow the index, minus costs and tracking error.
5. Solution-oriented and other funds
- Retirement and children’s funds — designed for specific long-term goals and come with a lock-in of at least five years (or until retirement / the child turns 18, whichever is earlier).
- Fund of funds — invest in other mutual funds, including international funds and gold funds, giving access to global markets or gold without buying them directly.
Open-ended vs close-ended funds
Open-ended funds can be bought and redeemed on any business day — most funds, including those offered through SIPs, are open-ended. Close-ended funds have a fixed maturity and can only be bought during the New Fund Offer (NFO); interval funds allow transactions only during specified intervals.
Direct plan vs regular plan
Every scheme has a direct plan and a regular plan with the same portfolio. A direct plan is bought directly from the AMC and has a lower expense ratio as no distributor commission is paid. A regular plan is bought through a distributor like Profinity; its expense ratio includes the distributor’s commission, and in return you get guidance, help with paperwork and ongoing service.
Understand the risk: the SEBI riskometer
Every mutual fund displays a riskometer that shows its risk level on a six-point scale: Low, Low to Moderate, Moderate, Moderately High, High and Very High. Always check that a scheme’s risk level matches your own comfort with risk.
How to choose the right type of fund
| Your goal / horizon | Fund types often considered |
|---|---|
| Emergency fund or under 1 year | Overnight, liquid, ultra short duration funds |
| 1 to 3 years | Short duration, corporate bond, conservative hybrid, arbitrage funds |
| 3 to 5 years | Balanced advantage, aggressive hybrid, multi asset funds |
| 5 years and above | Large cap, flexi cap, mid cap, index funds |
| Tax saving (old regime) | ELSS funds |
This table is only a starting point — the right choice also depends on your income, existing investments and risk appetite. Read the scheme information document before investing.
Need help shortlisting funds? Profinity gives you access to 5000+ schemes from 45+ AMCs. Contact our team or read our beginner’s guide to SIP.
Disclaimer: Mutual fund investments are subject to market risks, read all scheme related documents carefully. Past performance is not indicative of future returns. This article is for general information and investor education only and does not constitute investment, tax or legal advice. Profinity Mutual Fund Distribution Pvt. Ltd. is an AMFI-registered mutual fund distributor (ARN-76921).