Mutual Funds Classification by SEBI

In a bid to help retail investors make easy decisions, capital market regulator SEBI (Securities and Exchange Board of India), has classified mutual fund investments into five categories.  Also, it would allow only one scheme per category with some exceptions.

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The five categories along with their characteristics (as recognized by SEBI) are as follows:

1. Equity Schemes

Equity funds are mutual funds that are mainly invested in stocks.

As per SEBI, the equity scheme contains 10 categories, which include multi cap fund, large cap fund, small cap fund, focused fund, ELSS, etc.

2. Debt Schemes

A debt fund is the one in which core holdings are fixed income investments. These funds are typically invested in short-term or long-term bonds, money market instruments, secured products, etc.

SEBI recognizes 16 types of mutual funds under the debt scheme, including liquid fund, low duration fund, money market fund, credit risk fund, gilt fund, etc.

3. Hybrid Schemes

Hybrid funds are easily recognized by a portfolio that has a mix of both stocks and bonds. In other words, these funds are invested in both debt schemes and equity schemes, and are also known as “balanced” funds.

As per SEBI, there are seven types of mutual funds under the hybrid scheme including equity savings, arbitrage, multi asset allocation, etc.

4. Solution Oriented Schemes

There are two types of funds under this category:

• Retirement Fund: A scheme which has a minimum lock-in period of 5 years or till retirement (whichever is earlier).
• Children’s Fund: A scheme which has a minimum lock-in period of 5 years or till the child attains the age of majority (whichever is earlier).

5. Other Schemes

Other schemes include the FOFs fund and the index fund.

• FOFs (Overseas/Domestic): An open-ended fund in which the minimum investment is 95% of the total assets.
• Index Funds: An open-ended scheme which replicates or follows Index and has a minimum investment in the securities of a certain index as 95% of the total assets.