Types of Mutual Funds in India: Which One Should You Choose in 2025?

Investing in mutual funds has become one of the most popular ways for Indians to grow their money. With a variety of options available in the market, choosing the right type of mutual fund can be overwhelming—especially if you’re just starting out.

In this article, we’ll break down the different types of mutual funds available in India, explain how they work, and help you understand which one may suit your needs best in 2025.

What Are Mutual Funds?

A mutual fund is a pool of money collected from various investors, which is then invested in financial instruments like stocks, bonds, or a mix of both. These funds are managed by professional fund managers from Asset Management Companies (AMCs), and they’re regulated by SEBI (Securities and Exchange Board of India), ensuring transparency and safety.

You can start investing with as little as ₹100 through platforms like Groww, Zerodha Coin, Paytm Money, and others, making mutual funds accessible to almost everyone.

Classification of Mutual Funds in India

Mutual funds in India are categorized based on different criteria. Let’s look at the most common classifications.

1. Based on Asset Class

This classification depends on where the money is invested—stocks, bonds, or a combination.

a) Equity Mutual Funds: These funds invest primarily in stocks or equity-related instruments. They have the potential for high returns but also carry higher risk due to market volatility. Best suited for those willing to invest for a longer period and can handle market ups and downs.

Popular Sub-types:

• Large-Cap Funds

• Mid-Cap Funds

• Small-Cap Funds

• Multi-Cap Funds

b) Debt Mutual Funds: These invest in fixed-income securities like government bonds, corporate bonds, and treasury bills. They are generally more stable and less risky than equity funds, though the returns are usually moderate.

Suitable for: Investors who prefer stability and consistent income.

c) Hybrid Funds: As the name suggests, these invest in a mix of equity and debt. They offer a balance between growth and stability and are a good middle-ground option.

Types include:

• Conservative Hybrid Funds (more debt)

• Aggressive Hybrid Funds (more equity)

d) Gold Mutual Funds: These funds invest in gold-related instruments. Ideal for those looking to diversify their investments and hedge against inflation.

e) Index Funds and ETFs: These are passively managed funds that track a market index like the Nifty 50 or Sensex. Since they mirror an index, they have lower fees and are good for long-term, low-cost investing.

2. Based on Structure

This refers to how flexible a fund is when it comes to buying and selling units.

Open-Ended Funds

Most common type. You can invest or withdraw at any time based on the fund’s NAV (Net Asset Value). Highly liquid and convenient.

Close-Ended Funds

These are launched for a fixed period, say 3 or 5 years. You can only invest during the initial offer period. Once locked in, you can’t redeem until maturity (unless listed on an exchange).

Interval Funds

A mix of both. These funds open for buying/selling at specific intervals during the year.

3. Based on Investment Objective

This classification depends on what the fund is trying to achieve.

• Growth Funds: Focus on capital appreciation by investing heavily in equities. Best for long-term investors looking to build wealth.
• Income Funds: Invest in income-generating securities like bonds and debentures. Suitable for people who want steady payouts.
• Liquid Funds: These invest in short-term money market instruments. Ideal for parking surplus cash for very short durations—like a few weeks or months.
• Tax-Saving Funds (ELSS): Equity Linked Savings Schemes (ELSS) come with a 3-year lock-in period and offer tax deductions under Section 80C of the Income Tax Act, up to ₹1.5 lakh annually.

Which Type of Mutual Fund Should You Choose?

Choosing the right mutual fund depends on your financial situation, time horizon, and comfort with market risks. Here's a breakdown to help you decide:

New to Investing or Prefer Stability?

Consider Debt Mutual Funds or Liquid Funds. These are less volatile and offer more predictable returns, making them good for short-term or cautious investors.

Looking to Reduce Your Taxes?

ELSS (Tax-Saving Funds) can be a great option. You get tax benefits under Section 80C, and the 3-year lock-in period is shorter than other tax-saving instruments.

Willing to Invest for the Long Term?

Equity Mutual Funds or Index Funds might suit you. Though they carry higher risk, they also offer better growth over time, especially when invested through SIPs.

Want a Balanced Mix?

Hybrid Funds offer a blend of equity and debt. Ideal for those who want both growth and some degree of safety.

Pros & Cons of Each Mutual Fund Type

Type	Potential Return	Risk Level	Lock-In	Liquidity
Equity Funds	High	High	No	High
Debt Funds	Moderate	Low	No	High
Hybrid Funds	Moderate-High	Medium	No	High
ELSS	High	High	3 years	Low
Liquid Funds	Low	Very Low	No	Very High
Index Funds	Moderate-High	Medium	No	High

Final Thoughts: Picking the Right Mutual Fund

The Indian mutual fund industry offers something for everyone. Whether you're saving for a future event, building wealth over time, or simply looking for better returns than a fixed deposit, there's a mutual fund type that fits.

Start by evaluating your risk tolerance and how long you're comfortable staying invested. If you're unsure, start small with a SIP and gradually learn as you go.

And remember, no mutual fund is perfect. But the right one—based on your preferences and comfort—can help you make smarter financial decisions.