Published by MarketPlay. Sources and corrections policy.

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.