On June 1, 2018, investing in equity mutual funds in India got a tad easier thanks to a directive on scheme categorization (or recategorisation) to all Asset Management Companies (AMCs) by India’s capital markets regulator Securities and Exchange Board of India (SEBI).
SEBI’s rule meant that now every AMC will have one fund per category and not multiple funds like before. So within each AMC, there will be only one large cap fund, one mid cap fund, one small cap fund, one multicap fund and so on. While quite a few fund houses introduced many categories as a legitimate business response to this change, the move has helped in better decision making:
– Each scheme category because of its inherent exposure or style, carries a specific risk-reward ratio. The categorization rule defines the minimum adherence needed. So based on what one’s financial and life plans, one’s risk appetite dictate, one can choose the appropriate type of fund.
Below are the various equity fund categories:
EQUITY SCHEMES
Multi Cap Fund:
– Minimum investment in equity & equity related instruments: 65% of total assets
Large Cap Fund
– Minimum investment in equity & equity related instruments of large cap companies: 80% of total assets
Large & Mid Cap Fund
– Minimum investment in equity & equity related instruments: large cap companies: 35% of total assets, mid cap stocks 35%
Mid Cap Fund
– Minimum investment in equity & equity related instruments of mid cap companies: 65% of total assets
Small cap Fund
– Minimum investment in equity & equity related instruments of small cap companies: 65% of total assets
Dividend Yield Fund
– Scheme should predominantly invest in dividend yielding stocks.
Minimum investment in equity: 65% of total assets
Value Fund
– Scheme should follow a value investment strategy. Minimum investment in equity & equity related instruments: 65% of total assets
Contra Fund
– Scheme should follow a contrarian investment strategy. Minimum investment in equity & equity related instruments: 65% of total assets
Focused Fund
– A scheme focused on the number of stocks (maximum 30) Minimum investment in equity & equity related instruments: 65% of total assets
Sectoral/Thematic
– Minimum investment in equity & equity related instruments of a particular sector/ particular theme: 80% of total assets
ELSS
– Minimum investment in equity & equity related instruments: 80% of total assets (in accordance with Equity Linked Saving Scheme, 2005 notified by Ministry of Finance)
Index Funds/ETFs
– Minimum investment in securities of a particular index (which is being replicated/ tracked): 95% of total assets
FoFs (Overseas/ Domestic)
– Minimum investment in the underlying fund: 95% of total assets
Retirement Fund
– Scheme having a lock-in for at least 5 years or till retirement age whichever is earlier
Children’s Fund
– Scheme having a lock-in for at least 5 years or till the child attains age of majority whichever is earlier.
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