Large cap mutual funds: These funds invest all their money in only large caps (big companies). Within equities, large caps generally are expected to have lower risk and a lower return as compared to mid-cap companies or small-cap companies.Diversified funds: These funds invest around 65%-80% of their money in large caps (big companies), most of the remainder is in mid caps with possibly little allocation to small caps.
Flexicap funds: These funds generally invest across large, mid and small caps; often following a specific theme.
Small & mid cap funds: These funds invest most of their money in mid caps (medium sized companies) and small caps (small companies). Within equities, small caps generally are expected to have higher risk and a higher return as compared to mid-cap companies or large-cap companies.
Balanced Mutual funds: Equity focused funds: These invest equity as well as debt. Though, on an average at least 65% of the money is invested in equities, which makes the fund eligible for equity taxation (i.e. tax-free after one year). So you can slightly increase your investment here and pull in a bit of your debt allocation into this fund as well.
Arbitrage focused funds: In these funds the fund manager (with certain predefined rules) takes a call on the allocation to debt and equity. Your equity exposure can vary between 30% to 80%. If the sentiments turn bearish, the manager automatically transfers money to safer options and vice versa. This helps you to change your asset allocation without you having to book profits (and thereby pay taxes). These funds use arbitrage opportunities to give the benefits of equity taxation (tax free after one year).
Debt (Fixed income) Mutual funds: Fixed income funds are akin to investing in a Fixed deposit. Here the key change is that the fund manager builds a portfolio of a range of instruments from commercial papers, g-sec bills and govt. and corporate bonds. These funds typically give a slightly higher return than fixed deposit and a handsome tax benefit if held for more than three years.
Duration based strategy involves building a portfolio of bonds with a wide range of maturities and minimising risk of default by borrowers.
Accrual strategy typically involves holding a bond till maturity, benefiting from the cash-flows and reinvesting in other bonds while not attempting to time the interest rate cycle.
