scorecardresearchMutual fund investing: What are the different categories of equity schemes

Mutual fund investing: What are the different categories of equity schemes to invest?

Updated: 01 May 2023, 11:07 AM IST
TL;DR.

Equity mutual funds entail a slew of categories such as small cap, mid cap, large cap, flexi cap, multi cap, dividend yield and focused funds, among others.

Retail investors are meant to invest a sizeable portion in equity mutual funds to be able to

Retail investors are meant to invest a sizeable portion in equity mutual funds to be able to

Before investing in a mutual fund scheme, investors are recommended to curate as well as maintain a well-rounded portfolio. In order to do so, they are expected to invest in different categories of fund schemes which include equity, debt, hybrid, ETF (exchange traded funds), gold and fund of funds (FoFs).

However, it is worth noting that each mutual fund category has a number of sub-categories.

Within equity mutual funds, for instance, there are a number of schemes which include small cap, mid cap, large cap, flexi cap, multi cap, value, ELSS, contra, dividend yield, focused, sectoral/thematic and Large & mid cap.

Let us explain these equity fund categories in detail:

1. Small cap funds: These are mutual funds that invest a minimum of 65 percent of assets in equity and equity related instruments of small cap stocks. Small cap stocks are the ones that fall between 251 to 500 stocks as per the market capitalisation.

2. Mid cap funds: These are mutual funds that invest a minimum of 65 percent of assets in equity and equity related instruments of mid cap stocks. Mid cap stocks fall in the range of 101 to 250 stocks as per the market capitalisation

3. Large cap funds: These are mutual funds that invest a minimum of 65 percent of assets in equity and equity related instruments of mid cap stocks. Large cap stocks are the securities of top 100 companies listed in the stock exchange as per the market capitalisation.

4. Flexi cap funds: These mutual funds are mandated to invest a minimum of 65 percent in equity and equity related instruments across large cap, mid cap and small cap stocks, but unlike multi cap funds, there is no restriction of a minimum exposure to each of these categories.

5. Multi cap funds: Multi cap funds must invest 65% of their assets in equity and equity related instruments across large cap, mid cap and small cap stocks.

These funds must maintain an exposure of at least 25% each in large cap, mid cap and small cap stocks in order to provide greater diversification to multi cap fund investors.

6. Value funds: These funds follow value investment strategy with at least 65 percent in stocks.

7. ELSS funds: These funds invest a minimum of 80 percent in stocks in accordance with Equity Linked Saving Scheme, 2005.

8. Contra funds: These schemes follow contrarian investment strategy with at least 65 percent in stocks.

9. Dividend yield funds: These funds invest in dividend yielding stocks with at least 65 percent in stocks.

10. Focused funds: These funds are focused on a limited number of stocks (maximum 30) with at least 65 percent in equity and equity related instruments.

11. Sectoral or thematic funds: These funds invest in stocks of a particular sector/ theme such as FMCCG, financial, technology and healthcare, among others.

12. Large & mid cap funds: These are mutual fund schemes which have a minimum of 35 percent investment in large cap stocks and 35 percent in mid-cap stocks.
 

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First Published: 01 May 2023, 11:07 AM IST