Stock Market · Mutual funds, deeper

SEBI mutual fund categories

In 2017, SEBI standardised mutual fund categories to end the marketing confusion. Now every equity fund must fit into one of ~10 well-defined buckets. Understanding these categories is the first step to picking the right fund.

The equity fund categories

• Large Cap: 80%+ in top 100 companies by market cap. Lower volatility, slower growth.
• Mid Cap: 65%+ in 101st-250th ranked companies. Higher growth, higher risk.
• Small Cap: 65%+ in 251st+ companies. Highest growth potential, highest risk.
• Large & Mid Cap: 35% each in large and mid cap minimum.
• Multi Cap: 25% minimum each in large, mid, and small cap (compulsory diversification).
• Flexi Cap: No restriction. Fund manager allocates across market caps freely.

Why this matters

Before 2017, funds called themselves 'Bluechip' or 'Champion' with no fixed mandate. Now you KNOW what you're getting.

> Large cap funds rarely beat the Nifty 50 index. Index funds are usually cheaper alternatives. Mid and small cap funds have more room to outperform actively.

Risk-return profile

Historical 10-year CAGR (approximate):

• Large Cap: 10-12%
• Mid Cap: 13-16%
• Small Cap: 14-18% (with much larger drawdowns)
• Flexi Cap: 12-15%

Picking the right category

= If you want stability: Large cap or Flexi cap

= If you want growth + can handle volatility: Mid cap

= If you want maximum growth + can tolerate 40%+ drawdowns: Small cap

= If you can't decide: Multi cap (forces diversification) or Flexi cap (manager's discretion)

Takeaway. SEBI categorises equity funds by market cap allocation. Large cap = stable, small cap = highest growth + volatility, flexi cap = manager's choice, multi cap = forced diversification. Pick by your risk tolerance and time horizon.