Learn About the Different Categories of Mutual Fund Schemes

Learn About the Different Categories of Mutual Fund Schemes

Mutual funds are one of the most straightforward and transparent investment avenues in these times. But with so many mutual fund schemes going around with different names, it becomes a big task for the lay investor to identify a suitable scheme. To bridge this gap, SEBI released a Circular in October 2017, which contained guidelines on categorisation and mutual fund schemes. In the Circular, SEBI has made 5 broad categories and sub-categories within each category. This article explains the different types of mutual fund schemes and the essential characteristics/conditions of each category.

Category # 1: Equity schemes:

S. No.	Category	Scheme characteristics/minimum conditions
1	Multi-Cap Fund	Invest across large-cap, mid-cap, small-cap stocks Min. equity component – 65%
2	Large Cap Fund	Predominantly invest in large-cap stocks Min. equity component – 80%
3	Large and Mid-Cap Fund	Invest in both large-cap and mid-cap stocks Min. equity component (large-cap stocks) – 35% Min. equity component (mid-cap stocks) – 35%
4	Mid Cap Fund	​Predominantly invest in mid-cap stocks Min. equity component (mid-cap stocks) – 65%
5	Small Cap Fund	​Predominantly invest in small-cap stocks Min. equity component (small-cap stocks) – 65%
6	Dividend Yield Fund	Predominantly invest in dividend-yielding stocks Min. equity component – 65%
7	Value Fund	​The scheme should follow a value investment strategy Min. equity component – 65%
8	Contra Fund	The scheme should follow a contrarian investment strategy. Min. equity component – 65%
9	Focussed Fund	Maximum 30 stocks Min. equity component – 65%AMC to mention where the scheme intends to focus, viz., Multi-cap, large-cap, mid-cap, small-cap)
10	Sectoral/Thematic Fund	AMC to clearly mention the sector/theme that the scheme shall focus on Min. equity component (for stocks belonging to that sector/theme) – 80%
11	Equity Linked Savings Schemes (ELSS)	The statutory lock-in period of 3 years Min. equity component – 80% (per Equity Linked Saving Scheme, 2005, as notified by the Ministry of Finance)

Note: Mutual Funds will be permitted to offer either Value fund or Contra fund

Category # 2: Debt schemes:

S. No.	Category	Scheme characteristics/minimum conditions
1	Overnight Fund	Invest in overnight securities – Maturity of 1 day
2	Liquid Fund	Invest in debt and money market instruments – Maturity of up to 91 days
3	Ultra-short Duration Fund	Invest in Debt & Money Market instruments – Macaulay duration of the portfolio to be between 3 – 6 months
4	Low Duration Fund	Invest in Debt & Money Market instruments – Macaulay duration of the portfolio to be between 6 – 12 months
5	Money Market Fund	Invest in Money Market instruments – Maturity up to 1 year
6	Short Duration Fund	Invest in Debt & Money Market instruments – Macaulay duration of the portfolio to be between 1-3 years
7	Medium Duration Fund	Invest in Debt & Money Market instruments – Macaulay duration of the portfolio to be between 3 – 4 years
8	Medium to Long Duration Fund	Invest in Debt & Money Market instruments – Macaulay duration of the portfolio to be between 4-7 years
9	Long Duration Fund	Investin Debt & Money Market instruments – Macaulay duration of the portfolio to be more than 7 years
10	Dynamic Bond	Investment across duration
11	Corporate Bond Fund	Minimum 80% investment in corporate bonds (only in highest rated instruments
12	Credit Risk Fund	Minimum 65% investment in corporate bonds (below highest rated instruments)
13	Banking and PSU Fund	Minimum 80% investment in Debt instruments of banks, Public Sector Undertakings, Public Financial Institutions
14	Gilt Fund	Minimum 80% investment in Government Securities (across maturity)
15	Gilt Fund with 10-year constant duration	Minimum 80% investment in Government Securities (so that the Macaulay duration of the portfolio is equal to 10 years)

Note: For fund categories mentioned in pts. 3 to 9 above, the AMC has to mention the page number of the offer document where the concept of “Macaulay duration” is explained.

Category # 3: Hybrid Schemes

S. No.	Category	Scheme characteristics/minimum conditions
1	Conservative Hybrid Fund	Minimum equity component – Between 10% and 25% Minimum debt component – Between 75% and 90%
2a	Balanced Hybrid Fund	Minimum equity component – Between 40% and 60% Minimum debt component – Between 40% and 60% The AMC cannot do any arbitrage in this scheme
2b	​Aggressive Hybrid Fund	Minimum equity component – Between 65% and 80% Minimum debt component – Between 20% and 35%
3	Dynamic Asset Allocation (or Balanced Advantage)	Invest in equity or debt – AMC to manage it dynamically
4	Multi-Asset Allocation	Invests in at least three asset classes with a minimum allocation of at least 10% each in all three asset classes Note: AMC cannot offer foreign securities as a foreign asset class
5	Arbitrage Fund	The scheme should follow an arbitrage strategy. Minimum equity component – 65%
6	Equity Savings	Minimum equity component – 65% Minimum debt component – 10% AMC to state minimum hedged & unhedged in the Scheme Information Document (SID) AMC to state Asset Allocation under defensive considerations in the Offer Document

Note: Mutual Funds can offer either an Aggressive Hybrid fund or a Balanced fund

Category # 4: Solution-Oriented Schemes:

S. No.	Category	Scheme characteristics/minimum conditions
1	Retirement Fund	Lock-in: At least 5 years or till retirement age, whichever is earlier
2	Children’s Fund	Lock-in: At least 5 years or till the child attains the age of majority, whichever is earlier

Category # 5: Other Schemes:

S. No.	​Category	Scheme characteristics/minimum conditions
1	Index Funds/ Exchange Traded Funds	Minimum 95% investment in securities of a particular index (which is being replicated/ tracked) AMC to mention the name of the index
2	Fund of Funds (Overseas/ Domestic)	Minimum 95% investment in the underlying fund AMC to mention the name of the underlying fund

Conclusion

The above categorisation norms are beneficial in standardising the mutual fund offerings across AMCs. As an investor, you should look into your financial goals and choose the right category of mutual funds for your investment needs.

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