June 2, 2023

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What are the Various Categories that Mutual Funds are Divided into by SEBI?

Mutual fund word cloud concept with great terms such as investors, manager,  taxes, money, 401k, income, portfolio and more. | CanStock

There are more than 2500 mutual fund schemes in India right now. These are offered by 44 fund houses. All of these schemes offer regular and direct plans, and you can invest in them via a SIP or in a lump sum. Mutual funds are regulated by the Securities and Exchange Board of India (SEBI). Since there are several types of mutual funds, SEBI has classified them into certain categories. This categorization can help you pick out mutual fund schemes that align with your risk appetite, investment objective (what you’re saving up for), and investment horizon (how long you wish to invest). They also help reduce confusion. 

Here’s how SEBI classifies mutual funds:

1. Equity Schemes: These funds invest in equity and equity-related instruments. Equity mutual funds are further categorized into 10 categories. These include:

  • Small Cap Fund
  • Mid Cap Fund
  • Large Cap Fund
  • Multi-Cap Fund
  • Large and Mid Cap Fund
  • Equity Linked Savings Scheme (ELSS)
  • Value Fund
  • Contra Fund
  • Dividend Yield Fund
  • Sectoral or Thematic Fund
  • Focused Fund

2. Debt schemes: These funds invest in fixed income instruments such as government securities, Treasury Bills (TBs), Certificates of Deposits (CDs), PSU bonds, etc. Debt mutual funds are further categorized into 16 categories. These include:

  • Ultra Short Duration Fund
  • Short Duration Fund
  • Medium Duration Fund
  • Medium to Long Duration Fund
  • Long Duration Fund
  • Low Duration Fund
  • Money Market Fund
  • Liquid Fund
  • Gilt Fund
  • Gilt Fund with 10-year Constant Duration
  • Overnight Fund
  • Corporate Bond Fund
  • Banking & PSU Fund
  • Dynamic Bond Fund
  • Credit Risk Fund
  • Floater Fund

3. Hybrid Schemes: These schemes invest in a combination of equity and debt. Hybrid mutual funds are further categorized into six categories. These include:

  • Conservative Hybrid Fund
  • Balanced Hybrid Fund
  • Aggressive Hybrid Fund
  • Multi-Asset Allocation Fund
  • Dynamic Asset Allocation or Balanced Advantage Fund
  • Arbitrage Fund
  • Equity Savings

4. Solution Oriented Schemes: These schemes focus on specific future goals. Solution-Oriented mutual funds are further categorized into two categories. These include:

  • Children’s Fund
  • Retirement Fund

5. Other Schemes: The remaining mutual fund schemes have been classified under the following two categories:

  • Fund of Funds: overseas and domestic
  • Index Funds or Exchange Traded Funds (EFTs)

To sum it up

The categorization of mutual funds can help you pick out funds free of confusion and doubt. The categories also help you understand the risk associated with each mutual fund and allow you to build an investment portfolio as per your risk capacity. SEBI’s classification removes all irregularities in the structure of mutual funds and streamlines schemes, making it easier for you to select the right option for your needs. 

Now that you know how SEBI categorizes mutual funds, you can select an investment app to easily start investing in the funds of your choice. So, download the Tata Capital Moneyfy app and start your investment journey.