Types of Mutual Funds in India: The Complete SEBI Categories
Before October 2017, two schemes could carry near-identical names and hold quite different portfolios: one “balanced” fund held 65% equity, another 45%, and a fund house could run five large-cap-flavoured schemes hard to tell apart even after reading their documents. The types of mutual funds on the Indian shelf today are the direct result of SEBI ending that — defined groups, defined categories, and a stated boundary for what each may hold.
This guide walks that framework: the five groups, the categories inside them, what each owns, its risk and the horizon it is built around. It sits in Gale’s mutual funds hub; if fund structure is new, start with what a mutual fund is and keep the stock market terminology glossary open.
Why SEBI redrew the categories in 2017-18
The problem was sameness. By 2017 the industry ran well over 2,000 schemes, many of them minor variations kept alive because a new fund offer sells more easily than an old one. Category names were marketing terms: “opportunities” and “prudence” meant whatever a scheme document said.
SEBI’s categorisation circular of 6 October 2017 imposed three rules that still govern the shelf:
- Five groups with a fixed list of categories inside them — equity, debt, hybrid, solution-oriented and other, subdividing into roughly three dozen categories.
- One scheme per category per fund house, excepting index funds and ETFs on different indices, fund of funds, and sectoral or thematic funds.
- Uniform market-cap definitions — large cap is the top 100 listed companies by full market capitalisation, mid cap the 101st to 250th, small cap the 251st onward, from a list AMFI publishes twice a year.
Fund houses then merged and re-mandated hundreds of schemes through 2018.
What are the types of mutual funds in India?
Every open-ended scheme sold in India belongs to one category inside one of five groups:
- Equity — mostly shares, categorised by company size or mandate.
- Debt — bonds, government securities and money-market paper, categorised by how long the paper runs and whose credit it carries.
- Hybrid — a stated mix of equity and debt, sometimes with gold.
- Solution-oriented — goal-labelled schemes carrying a lock-in.
- Other — rule-based structures: index funds, ETFs and fund of funds.
The group tells you which risks you face; the category tells you how much of each.
Mutual funds types in India: the master table
Risk levels are indicative for the category, not a scheme’s actual risk-o-meter reading; the horizon column describes what the mandate is designed around. Neither is a recommendation.
| Group | Category | What it must hold | Typical risk | Horizon |
|---|---|---|---|---|
| Equity | Large cap | Min 80% top-100 companies | Moderately high | 5 yrs+ |
| Equity | Large & mid cap | Min 35% each, large and mid | High | 5 yrs+ |
| Equity | Mid cap | Min 65% ranks 101-250 | Very high | 7 yrs+ |
| Equity | Small cap | Min 65% ranks 251 onward | Very high | 7 yrs+ |
| Equity | Multi cap | Min 75% equity; 25% each size band | Very high | 7 yrs+ |
| Equity | Flexi cap | Min 65% equity, any size band | High | 5 yrs+ |
| Equity | Focused | Min 65% equity, max 30 stocks | Very high | 7 yrs+ |
| Equity | Dividend yield | Min 65% dividend-yielding stocks | High | 5 yrs+ |
| Equity | Value or contra | Min 65% equity, value or contrarian | High | 7 yrs+ |
| Equity | Sectoral or thematic | Min 80% one sector or theme | Very high | 7 yrs+ |
| Equity | ELSS | Min 80% equity; 3-year lock-in | Very high | Lock-in |
| Debt | Overnight | One-day paper | Low | Days |
| Debt | Liquid | Paper maturing within 91 days | Low | Days to weeks |
| Debt | Ultra short duration | Macaulay duration 3-6 months | Low to moderate | 3-6 months |
| Debt | Low duration | Duration 6-12 months | Low to moderate | 6-12 months |
| Debt | Money market | Instruments up to one year | Low to moderate | Up to a year |
| Debt | Short duration | Duration 1-3 years | Moderate | 1-3 yrs |
| Debt | Medium duration | Duration 3-4 years | Moderate | 3-4 yrs |
| Debt | Medium to long duration | Duration 4-7 years | Moderate to high | 4-7 yrs |
| Debt | Long duration | Duration above 7 years | Moderate to high | 7 yrs+ |
| Debt | Dynamic bond | Any duration, manager’s call | Moderate to high | 3 yrs+ |
| Debt | Corporate bond | Min 80% highest-rated paper | Moderate | 2-3 yrs |
| Debt | Credit risk | Min 65% below highest rating | High | 3 yrs+ |
| Debt | Banking & PSU | Min 80% bank, PSU, PFI paper | Low to moderate | 2-3 yrs |
| Debt | Gilt | Min 80% government securities | High on rates, low credit | 3 yrs+ |
| Debt | Gilt, 10-year constant duration | Min 80% G-secs, duration ~10 years | High on rates | 7 yrs+ |
| Debt | Floater | Min 65% floating-rate instruments | Low to moderate | 1-3 yrs |
| Hybrid | Conservative hybrid | 10-25% equity, rest debt | Moderate | 3 yrs+ |
| Hybrid | Balanced or aggressive hybrid | 40-60% or 65-80% equity | Moderately high | 5 yrs+ |
| Hybrid | Balanced advantage | Equity 0% to 100% | Moderately high | 3-5 yrs+ |
| Hybrid | Multi asset allocation | Three asset classes, min 10% each | Moderately high | 3-5 yrs+ |
| Hybrid | Arbitrage | Min 65% equity, hedged with futures | Low to moderate | Months |
| Hybrid | Equity savings | Equity, arbitrage, debt in set minimums | Moderate | 2-3 yrs+ |
| Solution | Retirement fund | Any mix; 5-yr or till-retirement lock-in | Varies with the mix | Lock-in |
| Solution | Children’s fund | Any mix; 5-yr or till-majority lock-in | Varies with the mix | Lock-in |
| Other | Index fund or ETF | Min 95% in index securities | Same as the index | Tracks the index |
| Other | Fund of funds | Min 95% in underlying scheme | Same as underlying | Tracks underlying |
Equity mutual funds: size first, mandate second
The equity shelf is organised mainly by company size, the cleanest proxy for how violently a portfolio can move. Large caps are the hundred biggest listed businesses — widely researched, widely held, still capable of falling 30% in a bad year. Mid and small caps trade thinner, fall harder in stress and take longer to recover, hence their longer stated horizons.
Multi cap versus flexi cap causes most of the confusion, because the two were once one thing. In September 2020 SEBI required multi-cap funds to hold at least 25% in each size band; houses that did not want the constraint got an unconstrained category, flexi cap, that November. A flexi-cap fund may sit at 90% large cap or 60% small cap; a multi-cap fund cannot.
Sectoral and thematic funds sit at the far end, where a minimum of 80% in one industry removes the diversification a pooled product otherwise provides. ELSS is the one equity category defined by a statutory lock-in rather than by what it holds — how that lock-in, its tax deduction, SIP scheduling, withdrawal plans and fund taxation fit a household’s finances is covered by Gale’s sister site WealthStem, while this page stays with fund data.
Debt mutual funds: two risks, sixteen categories
Debt funds are routinely called the safe half of the shelf. Sixteen categories exist precisely because they are not uniformly safe, and the differences run along two axes.
Duration risk is sensitivity to interest rates. Bond prices move opposite to yields, and longer bonds move harder. An illustration, not a forecast: if yields rise one percentage point, a portfolio with a modified duration of about four years sees roughly a 4% fall in the market value of its holdings, before interest accrual offsets any of it. The same rise costs an overnight fund almost nothing. This risk is symmetrical — it produces gains when rates fall — and the category name states it in advance.
Credit risk is the chance a borrower pays late or not at all, and it is not symmetrical. A downgrade or default can take several percent off a NAV in a day, and recovery, if it comes, arrives over years. Write-downs hit several schemes after the IL&FS default of September 2018, and in April 2020 Franklin Templeton wound up six schemes whose holdings could not be sold fast enough to meet redemptions, repaying investors in instalments over years. None of that showed in a returns chart beforehand; it showed in the portfolios. A gilt fund therefore carries heavy duration risk and negligible credit risk, a credit risk fund the reverse, and a liquid fund little of either.
Liquid mutual funds and the very short end
Liquid mutual funds hold instruments maturing within 91 days — treasury bills, commercial paper, certificates of deposit — while overnight funds hold one-day paper. Two rule changes since 2019 matter here. Liquid schemes now carry a graded exit load on redemptions within seven days, so parking money for two days has a cost attached; the expense ratio and exit load guide covers how loads work. And valuation norms changed so these portfolios are marked closer to market prices than smoothed by amortisation, which is why a liquid fund’s NAV can now show small daily wobbles.
Hybrid mutual funds: the mixed shelf
Hybrid mutual funds hold equity and debt together in stated proportions, outsourcing the asset-mix decision to the scheme’s rules. The categories differ mainly in how much freedom those rules allow.
- Conservative hybrid keeps 10-25% in equity, so debt risks dominate.
- Aggressive hybrid runs 65-80% equity; a fund house may offer this or the 40-60% balanced hybrid, not both.
- Balanced advantage may hold anywhere from 0% to 100% equity — two such funds can sit at 30% and 75% on the same day and both comply.
- Multi asset allocation holds three asset classes, minimum 10% each, which is how gold usually enters a hybrid.
- Arbitrage funds hedge equity with offsetting futures, so the profile behaves more like short-term debt, and equity savings blends directional equity, arbitrage and debt.
The trade-off is visibility: the market risk you carry moves with the manager’s positioning.
The “other” bucket: index funds, ETFs, gold and fund of funds
Everything above is actively managed; the “other” group holds the rule-based alternatives, the market’s fastest-growing corner.
An index fund holds an index’s constituents in index weights — at least 95% of assets — aiming to match, not beat. An ETF does the same but trades on the exchange, so it needs the demat setup described in how to start investing in the Indian share market and carries a market price that can drift from NAV; the trade-offs are in ETFs versus mutual funds. Because every Nifty 50 index fund holds the same fifty companies in the same weights, comparing them is unusually clean — expense ratio, tracking difference and size, not manager skill — which is what Gale maintains scheme by scheme in the Nifty 50 index funds comparison.
Gold enters as an ETF backed by physical metal, or as a fund of funds holding that ETF for investors without a demat account — one extra layer of expense, the caveat that applies to any fund of funds.
Solution-oriented types: mutual funds with a lock-in
Two categories sit outside the risk-based logic. A retirement fund and a children’s fund are defined not by what they hold — either may run an equity, debt or hybrid mandate — but by a lock-in: five years, or until retirement age or the child’s majority.
What a category label does and does not tell you
The framework fixed comparability, not judgment. Three limits matter.
A category is a floor, not a description. A flexi-cap fund must hold 65% equity; it may hold 95%. Two funds in one category can hold very different portfolios and both comply, so the monthly portfolio disclosure is the actual answer.
Risk labels are periodic, not predictive. The risk-o-meter’s six levels are reviewed monthly and grade the portfolio as it stands, not what next year does to it.
What is measurable in advance is cost and composition. The largest avoidable gap sits between the direct and regular plans of one scheme, quantified in direct versus regular plans. Compare returns over identical periods using the cash-flow-aware calculation in XIRR in mutual funds — and remember the NAV level itself ranks nothing.
FAQ
How many kinds of mutual funds are there in India?
Five groups — equity, debt, hybrid, solution-oriented and other — subdividing into roughly three dozen defined categories, generally one scheme per category per fund house.
What is the difference between debt mutual funds and liquid mutual funds?
Liquid funds are one category in the debt group, holding paper that matures within 91 days, which keeps rate and credit exposure low. Other debt categories run longer paper or lower-rated borrowers, so “debt fund” spans overnight bills to 10-year government securities.
Are hybrid mutual funds less risky than equity funds?
A hybrid holds less equity, but its debt half carries duration and credit risk of its own, and a balanced advantage fund may run up to 100% equity. The disclosed mix, not the group name, determines the risk carried.
Which types of mutual funds sit at the low-risk end?
Overnight and liquid categories carry the least rate and credit exposure, because their paper matures within days or weeks. Low risk is not no risk: they remain market-valued and move with short-term rates.
Official sources
- SEBI: Categorization and Rationalization of Mutual Fund Schemes (October 2017)
- SEBI Investor: mutual funds education material
- AMFI: introduction to mutual funds and scheme categories
Regulatory references and linked Gale pages were checked on 18 August 2026. Category definitions, load rules and valuation norms have been amended since 2017 and can change again; confirm current SEBI and AMFI material before acting.
What to weigh
The framework is a labelling standard, and it labels well: read a category name and you know the boundaries the scheme must respect, which was not true a decade ago. What it cannot do is choose for you. The category decides more of the outcome than the fund house does — a small-cap scheme and a liquid scheme are different asset classes in the same wrapper. Cost and composition can both be checked before a rupee moves; past return, the figure most argued over, is the least transferable of the three. And mandate floors are minimums, so the monthly portfolio stays the only place real exposure is visible. A category label narrows the question honestly. It does not answer it.
Gale.in is not a SEBI-registered investment adviser or research analyst; this article explains fund categories for education and is not a recommendation to buy or sell any scheme.