Equity or Growth funds invest predominantly in equities i.e. shares of companies. The primary objective is wealth creation or capital appreciation. They have the potential to generate higher returns and are best for long term investments. Examples of Equity funds are Large cap, Mid cap, Small Cap, Multi cap, Sector and Tax-Saving funds, etc.
Income or Bond Funds invest in Fixed Income Securities, like Government Securities or Bonds, Commercial Papers, Treasury Bills, Commercial Paper, etc. These are relatively safer investments and are suitable for Income Generation. Examples would be Liquid Funds, Short Term, Floating Rate, Corporate Debt, Dynamic Bond, Gilt Funds, etc.
These invest in both Equities and Fixed Income, thus offering the best of both, growth potential as well as income generation. They are also known as asset allocation funds. The presence of equity components in the portfolio offers the potential to earn higher returns. Examples would be Aggressive Balanced Funds, Conservative Balanced Funds, Pension Plans, Child Plans and Monthly Income Plans, etc.
