These funds invest in highly liquid money market instruments. The period of investment could be as short as a day. They provide easy liquidity. They have emerged as an alternative for savings and short-term fixed deposit accounts with comparatively higher returns.

A debt fund invests money in short-term or long-term bonds, securitized products, and money market instruments. The core holdings are fixed income investments.

Income fund emphasizes current income in the form of dividends or coupon payments as opposed to capital appreciation. They hold variety of government, municipal and corporate debt, preferred stock, money market instruments, and dividend-paying stocks.

Fund combines stock component, bond component and sometimes, money market component, in a single portfolio. Generally, these hybrid funds stick to a relatively fixed mix of stocks and bonds that reflects either a moderate (higher equity component) or conservative (higher fixed-income component) orientation.

Passively managed fund which tries to mirror the performance of a specific index such as SENSEX. An index fund is said to provide broad market exposure, low operating expenses and low portfolio turnover.

Large cap funds invest in stocks that have the higher earnings and growth potential. They are less volatile than to mid cap and small cap funds. Generally, Companies with a market capitalization in excess of Rs 1000 crore are known large cap companies.

Mid / Small cap funds are those mutual funds, which invest in small / medium sized companies. They are very volatile and tend to fall like a pack of cards in bad times. Generally, companies that have a market capitalization between Rs 500 crore and Rs 1,000 crore are classified as medium sized. Companies with a market capitalization of up to Rs 500 crore are classified as small.

Sectoral funds are those that restrict investments to a particular segment or sector of an economy, Also known as thematic funds. Return potential is very high with high volatility.