Indeed, mutual funds do have types. These types are based on the types of assets in which a mutual fund invests, such as shares, government securities, corporate bonds, gold, silver, and others.

The asset management companies, or as we all know it as mutual fund houses, invest pooled money in various investment options. They mostly invest in the stock market by buying shares of listed companies.

Types of mutual funds (MFs) also depend on the size of the company in which the house has invested. By ‘size’, we mean the market capitalization of the company, or we can say the overall market value of the company.

What is market capitalization (market cap) ?

The market cap is The market value of the whole company. It is the price of all the shares of that company. When we talk about shares of a company in the stock market, it means the company is a listed company.

Mutual funds and their types

If we categorize mutual funds, then there is a long range and various types of MFs in the market. In India, mutual funds are mainly categorized in five categories, viz –

• Equity funds
• debt funds
• hybrid funds
• solution oriented schemes and
• other schemes.

This is the SEBI’s way of categorizing the mutual funds. SEBI calls it ‘categorization and rationalization of mutual fund schemes’. Sub-categorization as per SEBI guidelines is also discussed below.

Visit SEBI website 👉 SEBI MF categories

Now, we will discuss only equity category briefly – and we will also discuss the sub-categories of the equity mutual funds. 👇

Equity mutual funds –

The equity mutual funds invest the pooled money in the stock market to buy shares of the listed companies. Shares and equity are two slightly different concepts.

Equity means the total ownership value of a company. Equity calculation = all assets minus all liabilities of a company. And shares are the units which represent that ownership.

Basically, the equity MFs buy shares and try to generate profits in the long term. These MFs can be volatile in the short term. A long-term investment is a good option when considering these equity MFs.

Sub-categories –

• Large-cap funds –
  • The mutual funds primarily invest in the large cap companies. Large cap funds invest at least 80% or more in large cap companies.
  • A large cap company is a company that comes in top 100 companies in India. And the market cap of such a company is around Rs.20000 crores or more. (According to the SEBI classification).
  • These large cap companies = blue-chip stocks is the popular name of the large cap companies. As these companies are fundamentally strong with a stable performance.
  • The remaining 20% of the investment can be targeted towards small cap and midcap companies or any other assets related to the equity instruments.

• Mid-cap funds –
  • These MFs primarily invest in the mid-cap companies. Mid-cap funds target their 65% (at least) or more investment in mid-cap companies/stocks.
  • A company ranks on the basis of its market cap. A mid-cap company ranks from 101st to the 250th position among the listed companies in India.
  • The market cap of such mid-cap companies is approx Rs.5000 crores to Rs.20000 crores.
    • These companies fall under the’moderate risk’ category. These companies are more volatile than the large-cap companies.
    • The mid-cap funds can give better returns than large-cap funds, but are more risky and volatile than large-cap funds.
    • The remaining 35% of the investment can be directed towards the other equity instruments or in small-cap, large-cap companies.

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Read about – Top 10 companies of India (2025)

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• Small-cap funds –
  • The small-cap funds target their 65% (at least) investment in the small-cap companies.
  • These are the high risk funds with more volatility. Large-cap and mid-cap funds are more safe than the small-cap funds.
  • These MFs can give very high returns, but are among the most risky assets to buy in the stock market.
  • A small-cap company ranks from 251st position onwards among the listed companies in India. The rank is based on the market cap of a company. A small-cap company has a market cap of less than Rs.5000 crores.
  • The remaining 35% of the investment can be allotted to other equity instruments.

• Flexi-cap funds –
  • This is a mixed type of mutual fund. The name ‘flexi’ is short for the ‘flexible’ fund. These MFs invest in all the three types of the companies, viz- large-cap, mid-cap and small-cap.
  • The flexi-cap funds do not require dedicating a particular percentage of the investment in a particular cap.
    • They are only required to dedicate at least 65% of the investment into equity and related instruments.
  • These funds are balanced and are less risky compared to the small-cap or mid-cap funds.

• Multi-cap funds –
  • The multi-cap fund is similar to the flexi-cap fund. The only difference is that the multi-cap fund must allocate the 25% of the investment to each category of companies. Large-cap, mid-cap and small-cap companies.
  • This distribution aims to balance the growth and makes the fund more stable.
  • Here, the multi-cap funds need to dedicate their 75% (at least) of overall investment into equity and the related instruments.

Until now, we have discussed the types of mutual funds in India according to the SEBI guidelines. Additionally, we read about equity funds and their sub-categories in detail.

In the next post/article, we will continue with the remaining categories.