Equity Fund Categories According to SEBI and Their Comparison


Equirus Wealth

31 Jan 2024 4 min read


Investing in the stock market can be a rewarding yet complex endeavor, and the wide array of equity funds available can be overwhelming. To simplify this maze, the Securities and Exchange Board of India (SEBI) has implemented a comprehensive categorization system for mutual funds.

This guide aims to shed light on SEBI's equity fund categorization, enabling investors to navigate the market with confidence and align their investment choices with their financial objectives and risk tolerance.

The Broad Strokes: Five Main Categories of Equity Funds

SEBI has streamlined the classification of mutual funds into five broad categories, each serving a distinct purpose:

  1. Equity-oriented schemes: These funds primarily invest in equities, aiming for long-term capital appreciation. This category is further divided based on various factors, allowing investors to choose funds that match their preferences.
  2. Debt-oriented schemes: These funds focus on debt instruments like bonds, emphasizing regular income generation through interest payments.
  3. Hybrid schemes: Offering a balanced mix of equity and debt, these funds provide investors with a combination of potential growth and income stability.
  4. Solution-oriented schemes: Tailored for specific financial goals like retirement planning or education funding, these funds align their asset allocation with the designated timeframe.
  5. Others: This category encompasses passively managed funds such as index funds and exchange-traded funds (ETFs), along with funds of funds.

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Source: Association of Mutual Funds of India

Understanding these broad categories is the first step toward simplifying the investment decision-making.

Diving Deeper: Unveiling the Equity Fund Sub-categories

Within the realm of equity-oriented schemes, SEBI further refines classification based on several key factors, providing investors with a nuanced understanding of their options:

1. Market Capitalization:

  • Large-cap funds: Primarily invest in companies with large market capitalization, typically the top 100 stocks.
  • Mid-cap funds: Focus on companies with medium market capitalization, ranking from 101st to 250th.
  • Small-cap funds: Concentrate on companies with smaller market capitalization, extending beyond the top 250.

2. Investment Strategy:

  • Value funds: Seek undervalued stocks with the potential for future growth.
  • Growth funds: Invest in companies expected to grow at a faster-than-average rate.
  • Dividend yield funds: Prioritize stocks offering high dividend payouts.
  • Contra funds: Invest in stocks that are currently out of favor but have potential for recovery.

3. Sector/Theme:

  • Sectoral funds: Concentrate on a specific industry, such as infrastructure or technology.
  • Thematic funds: Invest in companies based on a specific theme, like environmental sustainability or healthcare.

Finding the Right Fit: Matching Your Needs with the Categories

Selecting the most suitable equity fund category involves considering your factors:

  1. Investment Horizon: Evaluate your long-term financial goals and align them with the funds that match your desired timeframe.
  2. Risk Appetite: Different categories carry varying levels of risk. Large-cap funds generally offer lower risk compared to small-cap funds.
  3. Investment Objective: Define whether you prioritize capital appreciation, income generation, or a combination of both.

By understanding these factors, investors can make informed decisions that resonate with their unique financial situations.

Knowledge is Power: Utilizing SEBI's Equity Fund Categorization

By comprehending the intricacies of each category and aligning them with their investment goals, individuals can make informed choices. It's essential to conduct thorough research, diversify investments, and seek professional guidance to enhance the overall investment journey.

This article provides a basic overview of SEBI's equity fund categorization. For in-depth information on specific categories and individual funds, investors are encouraged to explore SEBI's official website and consult with qualified financial advisors.

In conclusion, the complex world of equity funds becomes more manageable when armed with knowledge. SEBI's categorization system serves as a beacon, guiding investors through the maze of options and helping them make choices that align with their financial aspirations.

With this newfound understanding, investors can confidently approach the market and embark on a journey toward financial success.

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