Equity Mutual Fund Categories Explained: Complete Guide for Indian Investors (2025)
Equity Mutual Fund Categories Explained: Complete Guide for Indian Investors (2025)
Quick Snapshot: SEBI has defined 11 categories of equity mutual funds to bring clarity and consistency to investors. Each category follows specific allocation rules and strategies. Whether you're into growth, value, tax saving, or even sectoral bets, there's something in here for you.
Let’s face it—investing in equity mutual funds can feel like being in a buffet with too many dishes. You want to taste everything but don’t want an upset stomach. That’s where SEBI’s categorization helps—it organizes the chaos. Here’s a conversational walkthrough of all 11 SEBI-approved equity mutual fund categories.
1. Multi Cap Fund
Quick Definition: Invests across large, mid, and small caps with at least 75% in equity.
Why It Matters: Think of this like an all-terrain vehicle. It can handle smooth highways (large caps), moderate bumps (mid caps), and off-road adventures (small caps).
My Take: Great for those who want diversification in one fund.
2. Flexi Cap Fund
Quick Definition: Minimum 65% in equity—no restrictions on market cap.
Why It Matters: Like giving a chef full freedom in the kitchen.
Client Story: One of my clients said, “I want someone smart to make those cap calls for me.” Makes sense.
3. Large Cap Fund
Quick Definition: Minimum 80% in large cap stocks (Top 100 companies).
Why It Matters: These are the blue-chips. Steady, reliable, and less volatile.
Tip: Great for first-time investors.
4. Large & Mid Cap Fund
Quick Definition: Minimum 35% in large cap and 35% in mid cap stocks.
Why It Matters: Combines stability with a bit of flair.
In My Experience: Works for those who want some excitement without going full mid cap.
5. Mid Cap Fund
Quick Definition: Minimum 65% in mid cap stocks (companies ranked 101–250).
Why It Matters: More growth potential, more risk.
Note: Stay invested for 5+ years to ride the volatility.
6. Small Cap Fund
Quick Definition: Minimum 65% in small cap stocks (251st and beyond).
Why It Matters: High-octane potential with real turbulence.
Caution: Suitable only for long-term, high-risk investors.
7. Dividend Yield Fund
Quick Definition: Minimum 65% in equity; focuses on dividend-paying companies.
Why It Matters: Like owning businesses that pay you rent.
Use Case: Suits those looking for steady income + equity growth.
8. Value Fund
Quick Definition: Minimum 65% in equity; follows value investing principles.
Why It Matters: Buy good companies at discounted prices.
In My View: Needs patience—markets take time to recognize value.
9. Contra Fund
Quick Definition: Minimum 65% in equity; follows a contrarian strategy.
Why It Matters: Buys what's out of favor—against the herd.
Investor Profile: For bold, independent-minded investors.
10. Focused Fund
Quick Definition: Maximum 30 stocks; minimum 65% in equity.
Why It Matters: High-conviction ideas with concentrated exposure.
Risk-Reward: Potentially high returns with higher risk.
11. Sectoral/Thematic Fund
Quick Definition: Minimum 80% in one sector or theme.
Why It Matters: You’re betting on a trend—IT, Pharma, EVs, etc.
Be Warned: Highly cyclical. Know your theme well.
12. ELSS (Equity Linked Saving Scheme)
Quick Definition: Minimum 80% in equity; eligible for 80C tax benefit with 3-year lock-in.
Why It Matters: A two-in-one—tax saving + wealth creation.
Common Myth: “3 years is enough.” Truth? It's not.
Frequently Asked Questions (FAQ)
Q1: Can I invest in multiple equity fund categories?
Absolutely. Just avoid overlapping similar types too much. Balance is key.
Q2: Which category is best for beginners?
Large Cap or Flexi Cap funds are usually safer starting points.
Q3: Are sectoral funds good for long-term investing?
Only if you're confident about the sector's future. Otherwise, use them tactically.
"The stock market is filled with individuals who know the price of everything, but the value of nothing.”- Philip Fisher
Wrapping Up
SEBI’s categorization isn’t just bureaucracy—it’s a roadmap. It helps you understand where your money is going and why. Whether you're a conservative saver or an adventurous growth seeker, there’s a fund category tailored to your personality.
So, next time you feel overwhelmed by equity funds, just remember: you're not picking blindly—you're choosing from a menu carefully crafted to suit different appetites.
Maybe it’s time to revisit your plate and see if you’ve got the right mix.
Disclaimer: This post is for educational purposes only.
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