Mutual Fund Categorization by SEBI
New Categories for Equity Mutual Funds & Where They Will Invest
• Multi Cap Funds: These schemes will continue to invest across large cap, midcap and small cap stocks. They are mandated to invest a minimum of 65 per cent of their total assets in stocks.
• Large Cap Funds: The large cap category of funds will also continue to invest in large cap stocks. But the minimum investment in large cap companies should be 80 per cent of the scheme’s total assets. These schemes invest in large-sized companies and thus carry lower risk than small and midcap schemes. Large cap schemes offer modest returns.
• Large and Mid Cap Funds: This is a new category introduced by Sebi. These schemes will invest in both large cap and midcap stocks. These schemes would invest at least a minimum of 35 per cent in large cap companies and 35 per cent midcap companies.
• Mid Cap Funds: As the name suggests, these schemes will predominantly invest in mid cap stocks. This category would invest at least 65 per cent of their total assets in midcap stocks. These schemes bet on mid-sized companies and carry a little extra risk as these companies may or may not realize their full potential. If they do, these schemes give great returns.
• Small Cap Funds: These schemes will invest primarily in smaller companies. The minimum investment in the small-sized companies should be 65 per cent of the scheme’s total assets. These funds invest in small companies. These companies can be extremely risky. However, they can also offer phenomenal return.
• Dividend Yield Funds: This is a new category introduced by Sebi. The schemes under this category will invest in dividend yielding stocks or stocks that pay periodic dividends.
• Value Funds: The schemes in this category will follow the value style of investment. These schemes are mandated to maintain a 65 per cent allocation to equities. Value investment style is where the fund manager bets on stocks that he/she believes are undervalued.
• Contra Funds: These schemes will follow the contrarian investment strategy and have a minimum 65 per cent allocation to equities. In the contra style of investing, the fund manager takes a contrarian view.
• Focused Funds: These schemes will invest in a maximum of 30 stocks. The scheme would mention which market cap it tends to focus (multicap, largecap, midcap, smallcap).
• Sectoral/ Thematic Funds: These schemes, as the name suggests, will invest in a particular theme or a sector. These schemes will have to invest a minimum 80 per cent of their assets in equity. Sectoral or thematic funds are generally considered risky for retail investors because their fortunes depend on the performance of a particular sector.
• ELSS (Equity Linked Saving Schemes): ELSSs are tax-saving mutual fund schemes with a lock-in period of three years. Their minimum investment in equities should be 80 per cent of the total assets.
Based on the above, some existing fund schemes have been merged, some have changed names, and some have been closed.