Mutual Fund Categories by SEBI (Equity, Debt, Hybrid, etc.)

Equity mutual funds invest primarily in stocks and equity-related instruments. They are best suited for long-term wealth creation but come with higher risk. SEBI mandates that a minimum of 65% of the portfolio must be invested in equities.

Subcategories:

• Large Cap Fund: Invests in top 100 companies by market cap
• Mid Cap Fund: Invests in 101st to 250th companies
• Small Cap Fund: Invests beyond 250th ranked companies
• Multi Cap Fund: Invests across large, mid, and small cap
• ELSS (Equity Linked Saving Scheme): Tax saving with 3-year lock-in
• Sectoral/Thematic Fund: Focuses on specific sectors like IT, pharma, etc.
• Value/Contra Fund: Invests based on value or contrarian strategies
• Focused Fund: Invests in a maximum of 30 stocks

Debt mutual funds invest in fixed income instruments like government securities, corporate bonds, treasury bills, etc. They are relatively safer and provide stable returns.

Subcategories:

• Overnight Fund: Maturity of 1 day
• Liquid Fund: Maturity up to 91 days
• Ultra Short Duration Fund: 3 to 6 months maturity
• Low Duration Fund: 6 to 12 months maturity
• Money Market Fund: Maturity up to 1 year
• Short Duration Fund: 1 to 3 years
• Medium Duration Fund: 3 to 4 years
• Long Duration Fund: More than 7 years
• Gilt Fund: Invests in government securities only
• Credit Risk Fund: Invests in lower-rated papers (higher risk, higher return)

Hybrid funds invest in both equity and debt instruments to balance risk and return. SEBI has defined the following types:

Subcategories:

• Conservative Hybrid Fund: 75–90% debt, 10–25% equity
• Balanced Hybrid Fund: 40–60% equity and debt each
• Aggressive Hybrid Fund: 65–80% equity
• Dynamic Asset Allocation (Balanced Advantage): Adjusts between equity and debt based on market conditions
• Multi-Asset Allocation: Invests in at least three asset classes (equity, debt, gold)
• Equity Savings Fund: Combines arbitrage, equity, and debt

These funds are designed for specific life goals. They come with a mandatory lock-in period of 5 years or until retirement/maturity.

Types:

• Retirement Fund: Long-term investment for retirement
• Children’s Fund: Designed for child’s education or future needs

SEBI has also categorized some funds that don’t fall strictly under equity or debt but offer niche benefits.

• Index Funds/ETFs: Replicates a market index like Nifty 50 or Sensex
• Fund of Funds (FoF): Invests in other mutual fund schemes
• International Funds: Invests in foreign stocks or global markets

SEBI mandates each fund to display a risk level using a Riskometer:

• Low
• Low to Moderate
• Moderate
• Moderately High
• High
• Very High

This helps investors match funds with their risk appetite.

Here’s a general formula SEBI uses to classify equity and hybrid funds:

Equity Allocation (%) = (Total Equity Instruments / Total Assets) × 100

Funds must maintain minimum allocation requirements as defined by SEBI to stay in their respective categories.

Understanding SEBI’s classification of mutual funds empowers you to choose the right fund based on your goals, risk appetite, and time horizon. Always match your fund type with your investment objective — whether it’s wealth creation, capital protection, regular income, or tax saving.