On 6^th October 2017, the Indian mutual funds’ regulator -Securities and Exchange Board of India (SEBI) introduced new norms for rationalization and re-categorization of mutual fund schemes. This resulted in a few changes in the way a few mutual fund schemes are defined. Let’s understand these new equity mutual fund categories.

Why did SEBI introduce new categories in Mutual funds?

SEBI announced broad and new categories in mutual funds to bring uniformity in similar schemes launched by several AMCs (asset management company) and mutual fund houses. This is done to ensure that one can compare similar financial products and evaluate different investment options before they invest in a mutual fund.

What are the new categories announced by the SEBI?

 Following are the ten new categories announced by the SEBI with their asset allocation plan:

1. Small-cap funds – These mutual fund schemes invest primarily in small-sized companies that rank above 250 in terms of their market capitalization. These funds are mandated to invest at least 65% of their corpus in equity and equity-related securities of small-cap companies.
2.  Mid-cap funds – These mutual fund schemes invest primarily in mid-sized companies that rank between 100 to 250 in terms of their market capitalization. These funds are mandated to invest at least 65% of their corpus in equity and equity-related securities of mid-cap companies.
3. Large-cap funds – These mutual fund schemes invest primarily in large-sized companies that rank in the top 100 in terms of their market capitalization. These funds are mandated to invest at least 80% of their corpus in stocks of large-cap companies.
4. Multi cap funds – These mutual fund schemes invest across small-cap, mid-cap, and large-cap stocks. These funds are mandated to invest at least 65% of their assets in equities and equity-related securities.
5. Large and mid-cap funds – This is a new category introduced by SEBI. These schemes invest principally in large-cap and mid-cap stocks. These funds are mandated to allocate at least 35% of their corpus to both mid-cap companies and large-cap companies.
6. Dividend yield funds – These mutual fund schemes chiefly invest in dividend-yielding stocks and are mandated to maintain at least 65% allocation to equities.
7. Value fund – These equity mutual funds follow the value style of investment. These schemes are mandated to invest 65% of their total assets in equities and equity-related securities.
8. Equity Linked Savings Schemes (ELSS) – ELSS funds are a tax-saving mutual fund that has a lock-in tenure of three years. ELSS tax-saving mutual funds are mandated to allocate a minimum of 80% of their corpus to equities and equity-related securities.
9. Focused funds – These equity mutual funds have a concentrated portfolio and can invest in a maximum of 30 stocks, be it large, mid, small, or multi-cap stocks.
10. Thematic/Sector funds – These equity funds invest in a particular theme or sector. These funds are mandated to invest at least 80% of their corpus in equities and equity-related securities.