With a view to bring in standardization in the classification of mutual funds and to ensure the schemes are clearly distinct from one another, SEBI issued a circular on Categorization and Rationalization of Mutual Fund Schemes in 2017. The objective was to bring uniformity in the characteristics of similar type of schemes launched by different mutual fund houses so that the investor can objectively evaluate the schemes chosen for investment. Accordingly, there are five broad categories of mutual fund schemes. Within each category, there are many sub-categories.

1. Equity Schemes (11 sub-categories)

2. Debt Schemes (16 sub-categories)

3. Hybrid Schemes (6 sub-categories)

4. Solution Oriented Schemes (2 sub-categories)

5. Other Schemes (2 sub-categories)

1. Equity schemes

a. Multi Cap Fund: An open-ended equity scheme investing across large cap, mid cap, small cap stocks. The minimum investment in equity and equity related instruments shall be 75 percent of total assets. Vide SEBI Circular dated September 11, 2020, multi-cap funds shall be defined as those with minimum investment in equity & equity related instruments --75% of total assets in the following manner:

• Minimum investment in equity & equity related instruments of large cap companies:25% of total assets

• Minimum investment in equity & equity related instruments of mid cap companies: 25% of total assets

• Minimum investment in equity & equity related instruments of small cap companies: 25% of total assets

b. Large Cap Fund: An open-ended equity scheme predominantly investing in large cap stocks. The minimum investment in equity and equity related instruments of large cap companies shall be 80 percent of total assets.

c. Large and Mid-Cap Fund: An open-ended equity scheme investing in both large cap and mid cap stocks. The minimum investment in equity and equity related instruments of large cap companies shall be 35 percent of total assets. The minimum investment in equity and equity related instruments of mid cap stocks shall be 35 percent of total assets.

d. Mid Cap Fund: An open-ended equity scheme predominantly investing in mid cap stocks. The minimum investment in equity and equity related instruments of mid cap companies shall be 65 percent of total assets.

e. Small cap Fund: An open-ended equity scheme predominantly investing in small cap stocks. Minimum investment in equity and equity related instruments of small cap companies shall be 65 percent of total assets.

f. Dividend Yield Fund: An open-ended equity scheme predominantly investing in dividend yielding stocks. Scheme should predominantly invest in dividend yielding stocks. The minimum investment in equity shall be 65 percent of total assets.

g. Value Fund or Contra Fund: A value fund is an open-ended equity scheme following a value investment strategy. Minimum investment in equity & equity related instruments shall be 65 percent of total assets. A contra fund is an open-ended equity scheme following a contrarian investment strategy. Mutual Funds will be permitted to offer either Value fund or Contra fund.

h. Focused Fund: An open-ended equity scheme investing in maximum 30 stocks (the scheme needs to mention where it intends to focus, viz., multi cap, large cap, mid cap, small cap). Minimum investment in equity & equity related instruments shall be 65 percent of total assets.

i. Sectoral/Thematic: An open-ended equity scheme investing in a specific sector such as bank power is a sectoral fund. While an open-ended equity scheme investing in line with an investment theme. For example, an infrastructure thematic fund might invest in shares of companies that are into infrastructure, construction, cement, steel, telecom, power etc. The minimum investment in equity and equity related instruments of a particular sector/ theme shall be 80 percent of total assets.

j. Equity Linked Savings Scheme: An open-ended equity linked saving scheme with a statutory lock-in of 3 years and tax benefit. The minimum investment in equity and equity related instruments shall be 80 percent of total assets (in accordance with Equity Linked Saving Scheme, 2005 notified by the Ministry of Finance).

k. Flexi-cap Fund: An open-ended equity scheme where the minimum investment in equity and equity related assets are 65% of the total assets. This would be a dynamic fund where there can be investment across large cap, mid cap as well as small cap stocks.

2. Debt schemes

a. Overnight Fund: An open-ended debt scheme investing in overnight securities. The investment is in overnight securities having a maturity of 1 day.

b. Liquid Fund: An open-ended liquid scheme whose investment is into debt and money market securities with a maturity of up to 91 days only.

c. Ultra-Short Duration Fund: An open ended ultra-short-term debt scheme investing in debt and money market instruments with Macaulay duration of the portfolio between 3 months and 6 months.

d. Low Duration Fund: An open-ended low duration debt scheme investing in debt and money market instruments with Macaulay duration of the portfolio between 6 months and 12 months.

e. Money Market Fund: An open-ended debt scheme investing in money market instruments having maturity up to 1 year.

f. Short Duration Fund: An open-ended short-term debt scheme investing in debt and money market instruments with Macaulay duration of the portfolio between 1 year and 3 years.

g. Medium Duration Fund: An open-ended medium-term debt scheme investing in debt and money market instruments with Macaulay duration of the portfolio being between 3 years to4 years. Portfolio Macaulay duration under anticipated adverse situation is 1 year to 4 years.

h. Medium to Long Duration Fund: An open-ended medium-term debt scheme investing in debt and money market instruments with Macaulay duration of the portfolio between 4 years and 7 years. Portfolio Macaulay duration under anticipated adverse situations is 1 year to 7 years.

i. Long Duration Fund: An open-ended debt scheme investing in debt and money market instruments with Macaulay duration of the portfolio greater than 7 years.

j. Dynamic Bond: An open-ended dynamic debt scheme investing across duration.

k. Corporate Bond Fund: An open-ended debt scheme predominantly investing in AA+ and above rated corporate bonds. The minimum investment in corporate bonds shall be 80 percent of total assets (only in AA+ and above rated corporate bonds).

l. Credit Risk Fund: An open-ended debt scheme investing in below highest rated corporate bonds. The minimum investment in corporate bonds shall be 65 percent of total assets only in AA (excludes AA+ rated corporate bonds) and below rated corporate bonds).

m. Banking and PSU Fund: An open-ended debt scheme predominantly investing in debt instruments of banks, Public Sector Undertakings, Public Financial Institutions and Municipal Bonds. The minimum investment in such instruments should be 80 percent of total assets.

n. Gilt Fund: An open-ended debt scheme investing in government securities across maturity. The minimum investment in G-secs is defined to be 80 percent of total assets (across maturity).

o. Gilt Fund with 10-year constant duration: An open-ended debt scheme investing in government securities having a constant maturity of 10 years. Minimum investment in G-secsis 80 percent of total assets such that the Macaulay duration of the portfolio is equal to 10 years.

p. Floater Fund: An open-ended debt scheme predominantly investing in floating rate instruments (including fixed rate instruments converted to floating rate exposures using swaps/derivatives). Minimum investment in floating rate instruments (including fixed rate instruments converted to floating rate exposures using swaps/derivatives) shall be 65 percent of total assets.

3. Hybrid Schemes

a. Conservative Hybrid Fund: An open-ended hybrid scheme investing predominantly in debt instruments. Investment in debt instruments shall be between 75 percent and 90 percent of total assets while investment in equity and equity instruments shall be between 10 percent and 25 percent of total assets.

b. Balanced Hybrid or Aggressive Hybrid Fund:

• Balanced Hybrid Fund: An open-ended balanced scheme investing in equity and debt instruments. The investment in equity and equity related instruments shall be between 40 percent and 60 percent of total assets while investment in debt instruments shall be between 40 percent and 60 percent. No arbitrage is permitted in this scheme.

• Aggressive Hybrid Fund: An open-ended hybrid scheme investing predominantly in equity and equity related instruments. Investment in equity and equity related instruments shall be between 65 percent and 80 percent of total assets while investment in debt instruments shall be between 20 percent and 35 percent of total assets Mutual funds in India are permitted to offer either Aggressive Hybrid Fund or Balanced Fund.

c. Dynamic Asset Allocation or Balanced Advantage: It is an open-ended dynamic asset allocation fund with investment in equity/debt that is managed dynamically.

d. Multi Asset Allocation: An open-ended scheme investing in at least three asset classes with a minimum allocation of at least 10 percent each in all three asset classes. Foreign securities are not treated as a separate asset class in this kind of scheme.

e. Arbitrage Fund: An open-ended scheme investing in arbitrage opportunities. The minimum investment in equity and equity related instruments shall be 65 percent of total assets.

f. Equity Savings: An open-ended scheme investing in equity, arbitrage and debt. The minimum investment in equity and equity related instruments shall be 65 percent of total assets and the minimum investment in a debt shall be 10 percent of total assets. The minimum hedged and unhedged investment needs to be stated in the SID. Asset Allocation under defensive considerations may also be stated in the SID.

4. Solution Oriented Schemes

a. Retirement Fund: An open-ended retirement solution-oriented scheme having a lock-in of 5 years or till retirement age (whichever is earlier). This is meant for long term planning related to acquiring a corpus for retirement.

b. Children’s Fund: An open-ended fund for investment for children having a lock-in for at least 5 years or till the child attains the age of majority (whichever is earlier). This is meant to invest to build a corpus for the child and their needs in the coming years. 

5. Other Schemes

a. Index Funds/Exchange Traded Fund: An open-ended scheme replicating/tracking a

specific index. This minimum investment in securities of a particular index (which is being replicated/tracked) shall be 95 percent of total assets.

b. Fund of Funds (Overseas/Domestic): An open-ended fund of fund scheme investing in an underlying fund. The minimum investment in the underlying fund shall be 95 percent of total assets.There can be only one scheme per category, except in the following cases:

1. Index funds and ETFs replicating or tracking different indices,

2. Fund of Funds having different underlying schemes, and

3. Sector funds or thematic funds investing in different sectors or themes.