Mutual fund classification based on the investment period

The mutual fund industry of India is a less spoken and little understood industry in India. Less than 10% of our households consider mutual funds as an investment option, based on reports. Due to the technicalities surrounding the mutual fund industry, ever changing stock market and hawk eyed commission agents, it is considered as a high-risk option.

That is the reason why several industry bodies are focusing towards investor education. Armed with basic information on the types of mutual funds, investors realize that these are perhaps one of the most flexible, comprehensive and rewarding modes of investments and can accommodate all types of investor needs.

Various types of mutual funds categories are designed to allow investors to choose a scheme based on the risk they are willing to take, the investable amount, their goals, the investment term, etc.

Depending on the number of days or time period one is interested in investing, the types of mutual funds are divided into three categories

I. Open-Ended - Open ended scheme of mutual funds allows investors to invest, but our sell units at any point in the scheme period. These mutual funds do not have a fixed maturity date.

II. Closed-Ended - Close ended schemes have a pre decided maturity period or time period. The rule says that investment can be done only during the initial launch period of the scheme, also known as the NFO (New Fund Offer) period.

III. Interval - It is a combination of closed and open ended schemes, it allows investors to invest and trade at pre-defined and fixed intervals.