Mutual Fund classification Based on Specialty

1) Tax- Saving Funds or ELSS: ELSS or Tax saving mutual funds come under the section 80C of the Income Tax Act, 1961 and qualify for a deduction of up to INR 1, 50,000/- for a financial year. The majority of the investment gets invested in equity stocks. There is a lock-in period of 3 years on the ELSS investment.

2) Diversified Equity Funds: These funds diversify the equity component of their Asset Under Management (AUM), across various sectors. Such funds avoid taking sectoral bets i.e. investing more of their assets towards a particular sector such as oil & gas, construction, metals etc. Thus, they use the diversification strategy to reduce their overall portfolio risk.

3) Index Fund: The index fund is a type of investment which is made to match the working of a market index like BSE. These funds provide broader exposure to the market, less operating cost and low portfolio turnover.

4) Real Estate Funds: As the name sounds, the real estate funds invest their money in real estate business. The investment in a real estate project can be made at any phase of the project.

5) Sector Fund: Sector-specific funds invest in the securities of a specific sector or industry such as FMCG, Pharmaceuticals, IT, etc. The returns on these funds are directed by the performance of the respective sector/industries.

6) Fund of Fund (FOF): Funds of funds are the types of mutual funds that invest in other mutual funds. The returns solely depend upon the performance of the target fund. These types of funds are also referred to as multi-manager funds.

7) Gold Fund: Gold funds are a type of mutual funds that directly or indirectly invest in gold reserves. Investments are usually made on stocks of gold producing and distributing syndicates, physical gold, and on stocks of mining companies.