Types of Mutual Funds in India: SEBI Categories
The types of mutual funds in India follow SEBI mutual fund categories, grouped into families: equity, debt, hybrid, passive and, from 26 February 2026, Life Cycle Funds. Each category has rules on how much it must hold in a given asset, so the category name tells you a good deal about what to expect.
Main types of mutual funds at a glance
| Family | What it holds | SEBI rule | Typical role |
|---|---|---|---|
| Equity | Mainly shares of listed companies, by size, style or sector | Size minimums in the table below; ELSS at least 80% equity; sectoral and thematic funds at least 80% in their sector or theme | Long-term growth |
| Debt | Bonds, government securities and money market paper, grouped by maturity and credit quality | Each category has its own maturity or credit mandate; sectoral debt funds limited to named sectors and to AA+ and above paper | Income, short-term parking, goals a few years away |
| Hybrid | A mix of equity and debt | Conservative 10-25% equity; Balanced 40-60% equity and 40-60% debt, no arbitrage; Aggressive 65-80% equity; Multi Asset at least 3 asset classes, at least 10% each | One fund with a built-in balance |
| Passive | Tracks an index, through index funds or ETFs | Expense ratio cap of 0.90% | Low-cost market exposure |
| Life Cycle | Equity and debt that shift as a target date nears | Target tenure 5 to 30 years, in multiples of 5 | One fund for a dated goal |
| Solution-oriented (discontinued) | Retirement and children's schemes | Discontinued from 26 February 2026; no new subscriptions; existing schemes to be merged | None for new investors |
Rules as of October 2026, from SEBI's circular of 26 February 2026.
Equity funds by size and style
Equity categories are defined mainly by where the money goes across company sizes. Companies are ranked by full market capitalisation: large caps are ranked 1 to 100, mid caps 101 to 250, and small caps from 251 onwards. AMFI publishes the list every six months. The February 2026 circular left these definitions unchanged.
| Category | Minimum (% of assets) | What the minimum means |
|---|---|---|
| Large Cap | 80 | At least 80% in large companies |
| Mid Cap | 65 | At least 65% in mid companies |
| Small Cap | 65 | At least 65% in small companies |
| Large & Mid Cap | 35 each | At least 35% in large companies and at least 35% in mid companies |
| Multi Cap | 75 equity | At least 25% each in large, mid and small companies |
| Flexi Cap | 65 equity | At least 65% in equity, any size |
Data note: minimums as set out in SEBI's circular of 26 February 2026. They are floors, so a fund may hold more.
Large, Mid and Small Cap bars show the share in that segment. Multi Cap and Flexi Cap bars show total equity. Rules as of October 2026.
Read more on what a large cap fund holds and on small cap funds, which can fall sharply in a bad year. How Flexi Cap and Multi Cap funds differ is covered separately.
Worked example: ₹1,00,000 in Multi Cap
Suppose ₹1,00,000 sits in a Multi Cap fund at the SEBI minimums.
| Holding | Share of assets | Amount (₹) |
|---|---|---|
| Large companies | 25% | 25,000 |
| Mid companies | 25% | 25,000 |
| Small companies | 25% | 25,000 |
| Total equity | 75% | 75,000 |
| Left to the manager | 25% | 25,000 |
Illustrative split at the minimums, not the holding of any fund. The manager may hold more in any segment, and the remaining 25% is the manager's call.
Other equity categories are defined by mandate rather than size. ELSS, or ELSS - Tax Saver Fund, must hold at least 80% in equity and has a 3-year lock-in, which is why it is used for tax saving under section 123 (formerly 80C) in the old tax regime. Sectoral and thematic funds must hold at least 80% in one sector or theme, chosen from an AMFI list, so their results depend heavily on that sector. Value and Contra funds can now come from one AMC if their portfolios overlap by at most 50%.
Debt funds by maturity and credit quality
Debt funds are grouped by two things: how long the underlying bonds run, and how creditworthy the issuers are. Each category's name tells you which of the two it is built around.
Overnight funds hold papers that mature within a day, and liquid funds hold very short papers. Corporate bond funds hold bonds issued by companies, and gilt funds hold government securities, which carry little credit risk but move with interest rates. Short, medium and long duration funds sit in between, and generally take more interest-rate risk the longer their duration.
Debt funds can still lose value when interest rates rise or an issuer runs into trouble. Sectoral debt funds are limited to named sectors such as financial services, energy, infrastructure, housing and real estate, and to AA+ and above paper.
Hybrid funds by equity share
Hybrid funds hold both equity and debt, and the category sets the equity range. Conservative hybrids hold 10% to 25% in equity. Balanced hybrids hold 40% to 60% in equity and 40% to 60% in debt, with no arbitrage. Aggressive hybrids hold 65% to 80% in equity.
Multi Asset Allocation funds hold at least three asset classes, with at least 10% in each.
Passive funds: index funds and ETFs
Passive funds copy an index. An index fund is bought from the fund house, while an ETF trades on a stock exchange like a share. SEBI caps the expense ratio of index funds and ETFs at 0.90%, so cost is contained by rule.
The trade-off is that a passive fund follows its index on the way down as well as up, and it cannot step away from a weak sector. Read more on what an index fund is.
Life Cycle Funds and discontinued schemes
From 26 February 2026, SEBI created Life Cycle Funds. These are open-ended, target-date funds with a tenure of 5 to 30 years, set in multiples of 5. They move from equity towards debt as the target date nears.
The same circular discontinued solution-oriented schemes, which were retirement and children's funds. Existing schemes stopped taking new subscriptions and are to be merged into schemes with a similar asset allocation and risk profile. The circular does not say that they convert into Life Cycle Funds. The timetable for existing schemes is covered in SEBI's 2026 recategorisation.
Tax by fund family
Tax follows the family. The rules below apply as of October 2026, for the tax year 2026-27.
| Family | Units held 12 months or less | Units held longer | Effective from |
|---|---|---|---|
| Equity-oriented (at least 65% in domestic listed equity, including ELSS) | 20% | 12.5% on gains above ₹1.25 lakh a financial year | Transfers on or after 23 July 2024 |
| Debt (more than 65% in debt and money market instruments) | Slab rate | Slab rate, whatever the holding period | Units bought on or after 1 April 2023 |
| Other (gold and international fund-of-funds, hybrids that meet neither test) | Slab rate | 12.5% without indexation; long-term after 12 months for listed units and 24 months for unlisted units | Tax year 2026-27 |
Plus surcharge and 4% cess.
Frequently asked questions
What is the difference between equity and debt mutual funds?
Equity funds hold mostly shares of listed companies, so their value can swing widely over time. Debt funds hold bonds and other fixed-income paper and usually move less, though they can still lose value when interest rates rise. Hybrid funds sit between the two.
Is a Large Cap fund a good first mutual fund?
It can be a sensible starting point, because a Large Cap fund must hold at least 80% in large listed companies, which are generally steadier than smaller ones. It still moves with the market, so match it to a goal far enough away to ride out falls.
What is a Life Cycle Fund?
A Life Cycle Fund is a target-date fund with a tenure of 5 to 30 years, set in multiples of 5. It holds more equity when the target date is far away and moves towards debt as the date nears. SEBI introduced the category from 26 February 2026.
Are index funds and ETFs the same thing?
They are different wrappers for the same idea. Both are passive funds that copy an index, but an index fund is bought from the fund house, while an ETF trades on a stock exchange like a share. SEBI caps the expense ratio of both at 0.90%.
Disclaimer
This article reflects the author's views as of 28 October 2026. Past performance does not indicate future returns. Examples that use assumed returns are for illustration only and are not projections. Consider your own goals and risk profile before investing.
Investment in securities market are subject to market risks. Read all the related documents carefully before investing.
The securities quoted are for illustration only and are not recommendatory.
Registration granted by SEBI, membership of BASL and certification from NISM in no way guarantee performance of the intermediary or provide any assurance of returns to investors.
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