From just two scheme types (equity scheme and debt scheme) offered when the mutual fund industry was conceived more than four decades ago, today, mutual funds offer a plethora of scheme types with different investment strategies. Consider equity schemes. From just one scheme type, there are, today, more than 10 types of schemes, each offering a unique investment strategy. For instance, an index fund invests in stocks forming a stock market index such as the BSE Sensex or NSE Nifty in order to make gains equivalent to appreciation in the index. A sector fund invests in securities of companies belonging to a specific sector (banking, IT, pharma, etc.) in order to make gains when the sector is prospering.

Similarly, in case of debt schemes, from just a single debt scheme-type, presently, there are more than 6 scheme types. Each debt scheme focuses on specific debt securities with specified tenures. For instance, a long-term gilt scheme will invest in government securities with long tenures (exceeding 7-8 years) while a short-term floating rate fund will invest in debt securities with short tenures (1-3 years) whose coupon rates are reset at regular intervals depending on change in prevailing interest rates.

In addition, there are schemes, which combine debt and equity to adopt different investment strategies (balanced funds, MIPs, etc.).

There are also schemes, which invest in other mutual fund schemes (called Fund of Funds).

In other words, mutual funds have been able to envisage different investment strategies that can be adopted by investors, and have created scheme types to cater to each of these strategies.