The SEBI has categorised equity mutual funds into 10 new categories. We list them and shed light on how the reclassification helps investors.
Over the years, people have been exploring various options in mutual funds to create wealth. Of these, equity funds found the most favour owing to their propensity for higher returns on the investment. However, there were over 2,000 mutual fund schemes to choose from till the end of year 2017. Finding the top mutual funds in India within each, which had a direct plan, normal plan, dividend and growth option, became difficult and confusing.
Early in 2018, the SEBI (Securities and Exchange Board of India) decided to cut through the mutual fund clutter and reclassify each fund category to make it easier to investors to decipher them. The reclassification was aimed at standardising nomenclatures and bringing more transparency in the fund arena. As a result, though there is no reduction in the number of schemes, investors now have more clarity when investing in equity, debt or balance funds. Fund houses also find the reclassification easier to work with in terms of benchmarking and tagging.
The top mutual funds in India – Equity funds explained
As per the SEBI reclassification, there are 10 categories of equity, 16 of debt, 6 for balance/hybrid and 2 for Special Situation funds. Let us examine the 10 equity fund categories:
- Large cap fund – invest in large cap stocks up to 80% of total assets in the scheme
- Large and mid-cap fund – Invest in both large and mid-cap stocks, with 35% each in mid and large cap stocks
- Mid cap fund – Invests 65% of assets in mid-cap stocks
- Small cap fund – Invests at least 65% of total assets in small-cap stocks
- Multi cap fund – Invests across all caps, Large, Mid and Small with 65% invested in equities
- ELSS – Invests minimum 80% of assets in equities
- Dividend yield fund – Invests up to 65% of total assets in equities but in dividend yielding stocks
- Value fund – Follows a value investment strategy and invests at least 65% of assets in equities, where the fund house offers either a value fund or a contra fund
- Focussed fund – It has a maximum of 30 stocks focussed on all caps, with 65% of assets in equities
- Thematic fund – Invests up to 80% of assets in a certain sector
With this classification, SEBI hopes that investors will now find it much easier to explore different funds and build their financial portfolio with greater clarity. It also makes cross-fund comparison much simpler than before, with funds now consolidated as per asset mix. Looking for the top mutual funds in India within the equity space is more structured, since the new reclassification tags equities funds as large cap or mid cap based on respective holdings, and not on mere absolute cut-offs. Listed companies are now ranked by market cap – top 100 companies are large cap, next 150 are mid cap, and remaining are small cap.