Learn About the Different Categories of Mutual Fund Schemes

Mutual funds are one of the most straightforward and transparent investment avenues in these times. But with so many mutual fund schemes going around with different names, it becomes a big task for the lay investor to identify a suitable scheme. To bridge this gap, SEBI released a Circular in October 2017, which contained guidelines on categorisation and mutual fund schemes. In the Circular, SEBI has made 5 broad categories and sub-categories within each category. This article explains the different types of mutual fund schemes and the essential characteristics/conditions of each category.

Category # 1: Equity schemes:

S. No. Category Scheme characteristics/minimum conditions 
1 Multi-Cap Fund  Invest across large-cap, mid-cap, small-cap stocks 

Min. equity component – 65%

2 Large Cap Fund Predominantly invest in large-cap stocks 

Min. equity component – 80%

3 Large and Mid-Cap Fund Invest in both large-cap and mid-cap stocks 

Min. equity component (large-cap stocks) – 35%

Min. equity component (mid-cap stocks) – 35%

4 Mid Cap Fund Predominantly invest in mid-cap stocks 

Min. equity component (mid-cap stocks) – 65%

5 Small Cap Fund Predominantly invest in small-cap stocks 

Min. equity component (small-cap stocks) – 65%

6 Dividend Yield Fund Predominantly invest in dividend-yielding stocks 

Min. equity component – 65%

7 Value Fund The scheme should follow a value investment strategy 

Min. equity component – 65%

8 Contra Fund The scheme should follow a contrarian investment strategy. 

Min. equity component – 65%

9 Focussed Fund Maximum 30 stocks

Min. equity component – 65%AMC to mention where the scheme intends to focus, viz., 

Multi-cap, large-cap, mid-cap, small-cap) 

10 Sectoral/Thematic Fund AMC to clearly mention the sector/theme that the scheme shall focus on

Min. equity component (for stocks belonging to that sector/theme) – 80%

11 Equity Linked Savings Schemes (ELSS) The statutory lock-in period of 3 years

Min. equity component – 80% (per Equity Linked Saving Scheme, 2005, as notified by the Ministry of Finance) 

Note: Mutual Funds will be permitted to offer either Value fund or Contra fund

Category # 2: Debt schemes:

S. No. Category Scheme characteristics/minimum conditions 
1 Overnight Fund Invest in overnight securities – Maturity of 1 day 
2 Liquid Fund  Invest in debt and money market instruments – Maturity of up to 91 days 
3 Ultra-short Duration Fund  Invest in Debt & Money Market instruments – Macaulay duration of the portfolio to be between 3 – 6 months
4  

Low Duration Fund 

Invest in Debt & Money Market instruments – Macaulay duration of the portfolio to be between 6 – 12 months
5 Money Market Fund  Invest in Money Market instruments – Maturity up to 1 year
6 Short Duration Fund  Invest in Debt & Money Market instruments – Macaulay duration of the portfolio to be between 1-3 years
7 Medium Duration Fund  Invest in Debt & Money Market instruments – Macaulay duration of the portfolio to be between 3 – 4 years
8 Medium to Long Duration Fund  Invest in Debt & Money Market instruments – Macaulay duration of the portfolio to be between 4-7 years
9 Long Duration Fund  Invest in Debt & Money Market instruments Macaulay duration of the portfolio to be more than 7 years
10 Dynamic Bond  Investment across duration 
11 Corporate Bond Fund  Minimum 80% investment in corporate bonds (only in highest rated instruments
12 Credit Risk Fund Minimum 65% investment in corporate bonds (below highest rated instruments) 
13 Banking and PSU Fund  Minimum 80% investment in Debt instruments of banks, Public Sector Undertakings, Public Financial Institutions
14 Gilt Fund  Minimum 80% investment in Government Securities (across maturity)
15 Gilt Fund with 10-year constant duration  Minimum 80% investment in Government Securities (so that the Macaulay duration of the portfolio is equal to 10 years)

Note: For fund categories mentioned in pts. 3 to 9 above, the AMC has to mention the page number of the offer document where the concept of “Macaulay duration” is explained.

Category # 3: Hybrid Schemes

S. No. Category Scheme characteristics/minimum conditions 
1 Conservative Hybrid Fund  Minimum equity component – Between 10% and 25%

Minimum debt component – Between 75% and 90%

2a Balanced Hybrid Fund  Minimum equity component – Between 40% and 60%

Minimum debt component – Between 40% and 60%

The AMC cannot do any arbitrage in this scheme 

2b Aggressive Hybrid Fund  Minimum equity component – Between 65% and 80%

Minimum debt component – Between 20% and 35%

3 Dynamic Asset Allocation (or 

Balanced Advantage)

Invest in equity or debt – AMC to manage it dynamically 
4 Multi-Asset Allocation  Invests in at least three asset classes with a minimum allocation of at least 10% each in all three asset classes 

Note: AMC cannot offer foreign securities as a foreign asset class

5 Arbitrage Fund  The scheme should follow an arbitrage strategy. 

Minimum equity component – 65%

6 Equity Savings  Minimum equity component – 65% 

Minimum debt component – 10%

AMC to state minimum hedged & unhedged in the Scheme Information Document (SID) 

AMC to state Asset Allocation under defensive considerations in the Offer Document 

Note: Mutual Funds can offer either an Aggressive Hybrid fund or a Balanced fund

Category # 4: Solution-Oriented Schemes:

S. No. Category Scheme characteristics/minimum conditions 
1 Retirement Fund  Lock-in: At least 5 years or till retirement age, whichever is earlier 
2 Children’s Fund  Lock-in: At least 5 years or till the child attains the age of majority, whichever is earlier 

Category # 5: Other Schemes:

S. No. Category Scheme characteristics/minimum conditions 
1 Index Funds/ Exchange Traded Funds  Minimum 95% investment in securities of a particular index (which is being replicated/ tracked) 

AMC to mention the name of the index 

2 Fund of Funds (Overseas/ Domestic)  Minimum 95% investment in the underlying fund

AMC to mention the name of the underlying fund

Conclusion

The above categorisation norms are beneficial in standardising the mutual fund offerings across AMCs. As an investor, you should look into your financial goals and choose the right category of mutual funds for your investment needs.

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