This classifies funds on the basis of frequency with which the portfolio is churned. It uses investment philosophy followed by the fund as the criterion for categorising the funds. It classifies funds according to the criteria used by the fund to select securities for its portfolio. Here the funds are classified on the basis of the investment objective where objective reflects the purpose for which the investor is investing his money. Here the funds use the criterion of the place of incorporation of the fund as the determining criterion for categorisation .
Investment needs It is necessary to decide the purpose for which the investment is being made.
This is because the investment avenue can vary depending upon the needs of the potential investor. For instance if one is investing for some event like retirement or for marriage of children and there is plenty of time to go, then it is better to invest in equity-dominated funds. On the other hand if the idea is to invest the lump sum received on retirement for regular income then a fixed income dominated fund is suitable. It is essential to invest in accordance with one's risk bearing capability. Equity funds therefore are not suitable for those with little risk appetite as volatile equity markets can impact fund returns.