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How Mutual Funds Use Futures and Options in Investing
Mutual fund houses mostly invest in stocks and bonds, and in other securities like money market instruments. Futures and options may, however, be a part of the scheme used. The derivatives help fund managers to manage risks, protect the portfolio during market volatility, and improve portfolio stability and risk management. When used within regulatory frameworks, they promote effective and efficient portfolio management.
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Mutual Funds Terms Glossary
- How Mutual Funds Use Futures and Options in Investing
What are Futures and Options in Mutual Funds
Mutual funds make use of financial derivatives in the form of futures and options to manage risks and control portfolio volatility, subject to limits and guidelines prescribed by SEBI. These are linked with securities such as stocks or market index. Fund managers use them carefully to avoid losing investments and controlling market fluctuations within the regulatory limits.
- Futures: Futures are contracts to buy or sell a stock or market index at a predetermined price on a future date. They are mainly used to hedge and retain market exposure.
- Options: Contracts giving the right, while not creating an obligation, to buy (call option) or sell (put option) an asset at an agreed price within a certain duration. They support in limiting losses during uncertain market conditions.
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- Mutual Funds
| Returns | ||||
|---|---|---|---|---|
| Fund Name | 5 Years | 7 Years | 10 Years | |
| Midcap Fund SBI Life | 16.91% | 19.33% |
17.31%
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|
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| Opportunities Fund HDFC Life | 13.25% | 15.78% |
14.33%
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| High Growth Pension Fund Axis Max Life | 22% | 21.62% |
20%
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|
| US Technology Advantage Fund ICICI Prudential Life | 23.46% | - |
25.41%
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| Multi Cap Fund Tata AIA Life | 21% | 21.26% |
22%
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|
| Accelerator Mid-Cap Fund II Bajaj Life | 12.52% | 14.5% |
13.92%
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|
| Multiplier Birla Sun Life | 16.47% | 17.12% |
15.96%
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| Virtue II PNB MetLife | 11.91% | 16.57% |
15.05%
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| Growth Plus Fund Canara HSBC Life | 9.11% | 9.86% |
10.2%
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| Blue-Chip Equity Fund Star Union Dai-ichi Life | 7.71% | 9.17% |
9.7%
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Last updated: Jun 2026
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| Fund Name | AUM | Return 3 Years | Return 5 Years | Return 10 Years | Minimum Investment | Return Since Launch |
|---|---|---|---|---|---|---|
| Motilal Oswal BSE Enhanced Value Index Fund Regular-Growth | ₹2,223.06 Crs | 24.2% | N/A | N/A | ₹500 | 28.3% |
| Bandhan Small Cap Fund Regular-Growth | ₹28,466.18 Crs | 25.56% | 18.33% | N/A | ₹1,000 | 28.48% |
| Motilal Oswal Midcap Fund Regular-Growth | ₹37,473.87 Crs | 18.42% | 21.26% | 16.07% | ₹500 | 20.1% |
| ICICI Prudential Infrastructure Fund-Growth | ₹8,549.71 Crs | 19.21% | 22.84% | 16.98% | ₹5,000 | 15.39% |
| Canara Robeco Large Cap Fund Regular-Growth | ₹16,692.31 Crs | 9.4% | 9.47% | 12.82% | ₹100 | 11.97% |
| Mirae Asset Large Cap Fund Direct-Growth | ₹38,379.27 Crs | 9.43% | 9.8% | 13.16% | ₹5,000 | 15.01% |
| Kotak Midcap Fund Regular-Growth | ₹67,611.00 Crs | 18.79% | 16.55% | 17.04% | ₹100 | 14.79% |
| SBI Small Cap Fund-Growth | ₹40,156.66 Crs | 11.68% | 13.34% | 17.52% | ₹5,000 | 18.58% |
| SBI Gold ETF | ₹23,780.81 Crs | 32.54% | 23.27% | 15.09% | ₹5,000 | 13.02% |
Updated as of Jun 2026
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Types of Mutual Fund Schemes
The Securities and Exchange Board of India (SEBI) classifies mutual funds into five broad categories based on asset class and investment objective. These are tailored to various investment objectives, risk, and investment periods.
- Equity Schemes: It is a type of fund that invests primarily in equity and equity-related transactions. These investment schemes can offer good long-term gains but remain subject to market risks.
- Debt Schemes: Debt funds invest in fixed-income instruments, like bonds, treasury bills, and corporate debt. Their goal is to offer steady returns at a comparatively lower risk.
- Hybrid Schemes: Hybrid funds are investments in a combination of both equity and debt securities. They aim to balance growth and risk, and therefore would be suited to moderate risk investors.
- Solution-Oriented Schemes: These plans focus on a defined financial aim such as retirement or child education. They normally come with an extended lock-in period.
- Other Schemes: This category includes funds that do not fit into the above groups, such as exchange-traded funds (ETFs), index funds and funds of funds.
Key Takeaways
Stocks and debt instruments are the main investments in mutual funds. Futures and options are also used in some schemes to deal with risk. These tools help manage portfolio risk and support better asset allocation. When used within regulatory limits, derivatives can enhance portfolio stability and risk management.
Frequently Asked Questions
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Can mutual funds invest in options?
Yes, there are mutual funds that are permitted to invest in options. Fund managers also use them mainly to manage risks and portfolio stability. -
Do options increase risk in mutual funds?
Not always. In hedging, options assist in minimising losses due to market price volatility. Improper use may increase risk. -
How can I know if a fund uses options?
You may refer to the offer document and scheme factsheet of the fund, particularly investment strategy and derivatives section. This section describes how the fund employs futures, options or other strategies of hedging.
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Glide Path is an investment strategy that shows how the asset*All savings are provided by the insurer as per the IRDAI approved insurance
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˜The insurers/plans mentioned are arranged in order of highest to lowest first year premium (sum of individual single premium and individual non-single premium) offered by Policybazaar’s insurer partners offering life insurance investment plans on our platform, as per ‘first year premium of life insurers as at 31.03.2025 report’ published by IRDAI. Policybazaar does not endorse, rate or recommend any particular insurer or insurance product offered by any insurer. For complete list of insurers in India refer to the IRDAI website www.irdai.gov.in
^^The information relating to mutual funds presented in this article is for educational purpose only and is not meant for sale. Investment is subject to market risks and the risk is borne by the investor. Please consult your financial advisor before planning your investments.