NISM: Types of Mutual Funds, Part 1: Equity Funds
Mutual fund scheme categorization and SEBI regulation
With a view to bringing 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 to the characteristics of similar type of schemes launched by different mutual fund houses so that investors could 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.(Ref1)
A. EquitySchemes(11sub-categories)
B. Debt Schemes (16 sub-categories)
C. Hybrid Schemes (6 sub-categories)
D. SolutionOrientedSchemes(2sub-categories)
E. Other Schemes (2 sub-categories)
A. Equity schemes
1. Multi Cap Fund: An open-ended equity scheme investing across large cap, mid cap, small cap stocks. (See Box 2.2)
The minimum investment in equity and equity related instruments shall be 75% of total assets.
According to 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
For this purpose, SEBI also defined the various market capitalization categories as under:
National Institute of Securities Markets
The same definition applies in case of other scheme categories, too, as applicable.
2. 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.
3. 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.
4. 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 shallbe 65 percent of total assets.
5. 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.
6. 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.
7. 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 65percent of total assets. A contra fund is an open-ended equity scheme following a contrarianinvestment strategy. Mutual Funds will be permitted to offer either Value fund or Contra fund.
8. 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.
9. 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.
10. 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).
11. 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. (Ref 3)