Top 5 Types of Mutual Funds in India Explained with Examples (2025)

Choosing the right type of mutual fund is crucial for aligning your investments with your financial goals and risk appetite. With various schemes available in India, it can be confusing for beginners to distinguish between them.

This blog breaks down the top 5 types of mutual funds available in 2025, their key features, risk levels, and ideal investor profiles—along with real examples of popular Indian mutual fund schemes in each category.

1. Equity Mutual Funds

What they are:

Equity mutual funds invest primarily in stocks of listed companies. These funds aim for long-term capital appreciation and are ideal for investors with a higher risk appetite.

Sub-types include:

• Large Cap Funds (e.g., SBI Bluechip Fund)

• Mid Cap Funds (e.g., Axis Midcap Fund)

• Small Cap Funds (e.g., Nippon Small Cap Fund)

• Multi Cap/Flexi Cap Funds (e.g., Parag Parikh Flexi Cap)

Best suited for:

Long-term investors (5+ years), aggressive investors, wealth creation

2. Debt Mutual Funds

What they are:

Debt funds invest in fixed-income instruments like government securities, corporate bonds, and treasury bills. They carry lower risk and provide stable returns.

Types include:

• Liquid Funds (e.g., ICICI Prudential Liquid Fund)

• Short Duration Funds (e.g., HDFC Short Term Debt Fund)

• Gilt Funds (e.g., SBI Magnum Gilt Fund)

Best suited for:

Conservative investors, short-term goals, parking surplus funds with better-than-FD returns

3. Hybrid Mutual Funds

What they are:

Hybrid funds invest in both equity and debt instruments, offering a balanced approach between risk and return.

Popular examples:

• HDFC Hybrid Equity Fund

• ICICI Prudential Balanced Advantage Fund

Best suited for:

Moderate-risk investors, new investors transitioning from debt to equity, retirement planning

4. ELSS (Equity Linked Savings Scheme)

What they are:

ELSS are tax-saving mutual funds under Section 80C, with a 3-year lock-in period and equity exposure.

Example:

• Axis Long Term Equity Fund

• Quant Tax Plan

Best suited for:

Tax-saving investors, salaried professionals, long-term wealth creators

5. Index Funds

What they are:

Index funds are passively managed funds that mirror a market index like Nifty 50 or Sensex.

Popular funds:

• UTI Nifty 50 Index Fund

• HDFC Index Sensex Fund

Best suited for:

Passive investors, low-cost seekers, long-term market believers

How to Choose the Right Mutual Fund Type

Ask yourself the following:

• What is your goal? (Retirement, buying a house, tax savings)

• What is your risk appetite? (Low, moderate, high)

• What is your time horizon? (Short, medium, long)

• Do you want active or passive management?

• Are you looking for tax-saving options?

If you’re unsure, financial partners like One Solution can help analyze your goals and suggest ideal fund categories that match your profile.

Final Thoughts

Each type of mutual fund serves a different purpose. Understanding the risk-return balance, time frame, and your goals will help you select the right scheme. Whether you’re a first-time SIP investor or an experienced market participant, choosing the right mutual fund type is your first step toward smart financial planning

Let One Solution guide you through fund selection, SIP setup, and ongoing performance tracking—personalized to your needs.