What Are the Different Types of Equity Mutual Funds?
In 2017, SEBI (Securities and Exchange Board of India) introduced regulations to streamline and standardise mutual fund categories. These rules ensure that each fund house can offer only one fund per category (with the exception of sectoral or thematic funds). As a result, many mutual funds underwent renaming, mergers, or restructuring in 2018 to comply with these guidelines. Below is an easy-to-understand explanation of the different types of equity mutual funds:
| Type of Fund | Description | Investment Strategy | Risk Level |
| Flexi Cap Funds | Invest across large, mid, and small-cap stocks, offering flexibility to the fund manager to shift based on market conditions. | Provide flexibility to the manager to adjust between market capitalizations depending on market trends. | Medium to High Risk – Depends on the manager’s market decisions. |
| Multi Cap Funds | Invest across large, mid, and small-cap stocks, aiming for diversified returns. | Provide a mix of growth and stability by investing in different market cap segments. | Medium Risk – Balanced risk with diversification. |
| Large & Mid Cap Funds | Invest in both large-cap and mid-cap stocks. | A blend of stability from large-cap stocks and growth from mid-cap stocks, offering balanced risk and return potential. | Medium Risk – Mix of stable and growth-oriented investments. |
| Large Cap Funds | Invest primarily in large, well-established companies with a stable track record. | Focus on stable and mature companies, generally less volatile and suitable for conservative investors. | Low to Medium Risk – Lower volatility and stable growth. |
| Mid Cap Funds | Invest in medium-sized companies with growth potential but higher risk compared to large-cap stocks. | Aim for higher growth by investing in businesses with growth prospects but still with significant risk. | Medium Risk – Higher growth potential but more volatile. |
| Small Cap Funds | Invest in smaller companies with high growth potential but also higher risk and volatility. | Focus on emerging businesses; high growth but also more susceptible to market volatility. | High Risk – High volatility and growth potential. |
| Tax Saving (ELSS) | Equity Linked Savings Scheme (ELSS) offers tax deductions under Section 80C of the Income Tax Act. | Invest in equity stocks with a lock-in period (typically 3 years) to enjoy tax benefits and potential long-term growth. | Medium Risk – Offers tax benefits but equity exposure. |
| Sector Funds | Invest in stocks of companies from a particular sector, such as technology, healthcare, or energy. | Concentrate investments in one specific sector, providing higher risk but potential for significant sector-based returns. | High Risk – Risk tied to the performance of a single sector. |
| Thematic Funds | Invest in stocks related to a specific theme or trend, such as green energy, technology, or infrastructure. | Focus on specific investment themes or trends that are expected to perform well over time. | High Risk – Risk linked to specific market trends. |
| International Funds | Invest in foreign markets and international stocks outside of India. | Offer exposure to global markets, diversifying away from the Indian economy and seeking international growth. | Medium to High Risk – Exposed to international market volatility. |
| Contra/Value Funds | Invest in undervalued stocks that are expected to perform well in the future. | Focus on stocks that are undervalued or out of favour but have long-term growth potential. | Medium to High Risk – Higher risk due to market sentiment. |
| Focused Funds | Invest in a concentrated portfolio, often focusing on a small number of stocks. | Concentrate investments in a few selected stocks, increasing risk but with the potential for higher returns. | High Risk – Concentration increases risk. |
| Dividend Yield Funds | Invest in stocks of companies that regularly pay dividends, providing steady income along with capital appreciation. | Focus on stocks that offer regular dividends, suitable for investors seeking income along with growth. | Medium Risk – Steady income with moderate growth. |
There are additional types of equity funds besides those mentioned above. Each fund type comes with its own risks and rewards, and picking the right one depends on your goals and how much risk you can handle. A mutual fund distributor or advisor can help you make the best choices based on your needs. They know how to explain these different categories and can assist you in picking funds that match your financial plan. So, before you invest, always talk to a professional to make sure your money is working effectively for you!
