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Part - V

Gilt funds are those funds that invest in the corpus of the government securities. These funds are suitable for those who seek risk free returns. The examples of Gilt funds are Birla Gilt plus, BOB Gilt fund, Chola Gilt fund, etc. The last classification under this category is that of the Equity linked savings scheme (ELSS). Under this scheme, the investors get exposed to investing in equity funds while availing of the tax redemption. Further these funds have a lock-in period of three years. These schemes are NAV based and the investor has the risk of loosing his principal.

Classification of Mutual Funds on the basis of Basis of Fund Load

On the basis of Fund load Mutual Funds can be classified as Load funds. The costs associated with the fund are marketing costs and operating costs. While the operating costs are charged to the scheme earnings, the marketing costs cannot be charged to the earnings of the scheme. Load Funds charge the marketing costs to the scheme. They can be classified on the basis of Front-end load and Backend load. In the case of Front end load the load is charged at the time the investors invest in the fund while in the case of Backend load the investors are required to pay the loading charges at the time they exit from the fund. The securities and exchange board of India has allowed for schemes to be having partial load, i.e., part of the marketing expenses have to be borne by the scheme and a part of it have to be borne by the asset management company.

Classification of Mutual Fund on the Basis of Market Orientation

On the basis of market orientation mutual fund can be classified as Specialized Funds, Bond Funds, Index Funds, Exchange traded funds and Hedge Funds. Specialized funds also known as sectorial funds are those funds that limit their holdings to the securities of one particular industry .To be classified as a sectorial fund, the fund must have 25% of its money into one particular industry .The returns in these funds are dependent upon the performance of the respective sector or industries in which they have invested their money. While these funds may give better returns, they are more risky compared to diversified funds. The investors should constantly keep a watch on the particular sectors he has invested and should exit at the appropriate time. He should also seek advice of an expert.

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* Contributed by -
Sarthak Kumar Rath,
PGDBA (Finance), ICFAI Business School,
Currently working as Associate Consultant at ICIT Software Center Pvt. Ltd.