Types of Mutual Funds in India
SEBI reorganised the types of mutual funds sold in India on 26 February 2026. There are now 13 equity, 17 debt and 7 hybrid categories, plus Life Cycle Funds and passive schemes. Solution-oriented schemes, meaning retirement and children’s funds, were discontinued the same day.
Most pages explaining the types of mutual funds still describe the framework SEBI set in 2017, which was replaced. This page uses the current one, and names the circular so you can check it.
Dhanvantri Capital Services Private Limited, known as Dhanvantree, is an AMFI-registered mutual fund and Specialised Investment Fund distributor, ARN-194216, and a distributor of portfolio management services registered with APMI, APRN10201. We do not recommend schemes. The choice is yours.
What changed on 26 February 2026
SEBI issued circular HO/24/13/15(2)2026-IMD-RAC4/I/5764/2026 on 26 February 2026. It replaced the scheme categorisation rules that had stood since 2017, and it took effect the day it was issued rather than at the start of the next financial year. Clause 2.6.7 gave fund houses six months from that date, so the deadline was 26 August 2026.
Five changes matter to anyone holding or buying a fund.
Solution-oriented schemes were discontinued. Retirement funds and children’s funds stopped accepting fresh subscriptions immediately. They are being merged into schemes with similar asset allocation and risk, with SEBI approval. Value Research reported the money affected at around ₹57,000 crore. That figure comes from one secondary source and is a point-in-time snapshot, so treat it as an indication of scale rather than a current number.
Life Cycle Funds replaced them. A new category with a fixed target date and an asset mix that shifts from equity into debt as that date approaches.
Four equity categories must now hold more equity. Dividend yield, value, contra and focused funds moved from a 65% minimum to 80%.
Sectoral Debt Funds are new. Debt schemes that concentrate on one sector.
A 50% portfolio overlap cap was introduced. A value fund and a contra fund from the same fund house may no longer hold more than half the same stocks.
| Change | Before | After |
|---|---|---|
| Equity categories | 11 | 13 |
| Debt categories | 16 | 17 |
| Hybrid categories | 7 | 7 |
| Solution-oriented | 2 | Discontinued |
| Life Cycle Funds | — | New |
| Dividend yield, value, contra, focused | 65% equity | 80% equity |
| Portfolio overlap cap | None | 50% |
The general compliance deadline was 26 August 2026, six months from the circular, and it has passed. Sectoral and thematic schemes have longer: three years, to 26 February 2029, because unwinding overlapping holdings takes time. The circular sets a schedule for that, clearing 35% of the excess overlap in year one, another 35% in year two and the remaining 30% in year three.
Types of mutual funds: how SEBI categorisation limits what you can buy
Categorisation is a rule about supply, not a label. A fund house may run only one scheme per category. That is why the number of large cap funds on sale in India is close to the number of fund houses, rather than ten times it, and why every fund house offers a similar-looking range.
Three consequences follow, and the third is the one that catches people out.
The category sets the mandate, not the fund manager. A mid cap fund must keep at least 65% in mid cap stocks whatever the manager thinks of mid caps this year.
The exceptions are index funds, exchange-traded funds and fund-of-funds. A fund house can run many of these, because each tracks a different index.
The scheme’s name does not reliably tell you its category. Names are marketing. The category is stated in the scheme information document, and it is what decides the tax treatment.
Market capitalisation is defined by rank, not by rupee value. AMFI publishes the list every six months. Large cap means the 100 largest companies by full market capitalisation. Mid cap means ranks 101 to 250. Small cap means rank 251 and below. A company can move between bands, and funds then have to adjust.
Types of equity mutual funds: the 13 categories
Equity schemes invest mainly in shares, and are the most widely held of the types of mutual funds. SEBI now defines 13 categories, up from 11. Two pairings that used to count as one category each were separated: value and contra, and sectoral and thematic. Each category carries a minimum the scheme must hold.
| Category | Minimum holding |
|---|---|
| Multi cap | 75% in equity, with at least 25% each in large, mid and small cap |
| Large cap | 80% in large cap stocks |
| Large and mid cap | 35% each in large cap and mid cap |
| Mid cap | 65% in mid cap stocks |
| Small cap | 65% in small cap stocks |
| Flexi cap | 65% in equity, any market cap |
| Dividend yield | 80% in dividend-yielding stocks |
| Value | 80%, following a value strategy |
| Contra | 80%, following a contrarian strategy |
| Focused | 80%, across a maximum of 30 stocks |
| Sectoral | 80% in one sector |
| Thematic | 80% in one theme |
| ELSS, also called tax saver | 80% in equity |
Four of those rows changed in 2026, and one that looks like it should have did not.
Dividend yield, value, contra and focused funds rose from 65% to 80%. A fund in one of these categories now has less room to sit in cash or debt when its manager is cautious. The strategy is more concentrated than it was.
ELSS did not change. It was already at 80%. ELSS is the only equity category with a statutory lock-in, at three years, and it is the only one that qualifies for a deduction under the old tax regime.
Multi cap and flexi cap sound alike and are not. A multi cap fund must hold at least 25% in each of large, mid and small cap. A flexi cap fund has no such floor and can hold whatever mix of market caps it chooses. The flexi cap category is the more flexible of the two, and the name is the only part of it that is obvious.
The 50% overlap rule, and what it means for value and contra
SEBI introduced a portfolio overlap cap on 26 February 2026. Where the rule applies, two schemes from the same fund house may not hold more than 50% of the same portfolio. The cap binds value and contra funds, and separately binds sectoral and thematic schemes against most other equity categories.
It binds in two places, and one carve-out is easy to miss: the sectoral and thematic cap is measured against other equity categories except large cap schemes.
Value and contra funds from the same fund house. These were one category until February 2026 and are now two, so a fund house may run one of each. The two portfolios must differ by at least half.
Sectoral and thematic schemes. These may not overlap by more than 50% with other equity schemes in the sectoral and thematic category, or with other equity categories. Large cap schemes are excluded from that comparison.
The problem being addressed is closet indexing. A fund marketed as a distinct strategy, charging an active management fee, while holding substantially what another scheme from the same house already holds. The rule does not stop a fund tracking its benchmark closely. It stops two schemes from the same house being the same fund under two names.
Existing sectoral and thematic schemes have until 26 February 2029 to comply, because selling down overlapping positions in a concentrated sector moves the price against the fund.
What is a debt fund? The 17 debt categories
Debt schemes lend money rather than buy ownership. Among the types of mutual funds, these are the ones driven by interest rates. Most debt categories are defined by Macaulay duration, which measures how long a bond’s cash flows take to repay its price. Longer duration means more sensitivity to rate changes.
By Duration
| Category | Duration |
|---|---|
| Overnight | 1 day |
| Liquid | Up to 91 days |
| Ultra short term | 3 to 6 months |
| Ultra short to short term | 6 to 12 months |
| Money market | Instruments maturing within 1 year |
| Short term | 1 to 3 years |
| Medium term | 3 to 4 years |
| Medium to long term | 4 to 7 years |
| Long term | Over 7 years |
| Dynamic term | Across durations, manager’s choice |
By What They Hold
| Category | Minimum holding |
|---|---|
| Corporate bond | 80% in bonds rated AA+ and above, meaning the higher end of the credit rating scale |
| Credit risk | 65% in bonds rated AA and below |
| Banking and PSU debt | 80% in debt issued by banks and public sector undertakings |
| Gilt, meaning government debt | 80% in government securities |
| Gilt with 10-year constant maturity | 80% in government securities of 10-year maturity |
| Floating interest rate | 65% in floating rate instruments |
| Sectoral Fund, the new debt category | 80% in one sector |
The Sectoral Fund is the new one, listed in the circular’s debt table rather than the equity one. The circular names the permitted sectors: financial services, energy, infrastructure, housing and real estate. A sectoral debt fund concentrates its lending in one of those, which means its risk is tied to that sector rather than spread across the economy.
One naming trap. A credit risk fund holds lower-rated bonds and pays more for doing so. The name describes what it buys, not a warning label attached to it by a regulator. Every debt fund carries credit risk. This one is defined by holding more of it.
Hybrid funds: the 7 categories
Hybrid schemes hold more than one asset class. SEBI defines seven categories, and the category sets the permitted range for each asset rather than a single fixed split. The mix also decides how the fund is taxed, which is why the category matters more than the name.
| Category | Allocation |
|---|---|
| Conservative hybrid | Equity 10% to 25%, debt 75% to 90% |
| Balanced hybrid | Equity 40% to 60%, debt 40% to 60%. Arbitrage is not permitted. |
| Aggressive hybrid | Equity 65% to 80%, debt 20% to 35% |
| Dynamic asset allocation (balanced advantage) | Managed dynamically between equity and debt |
| Multi asset allocation | At least three asset classes, minimum 10% in each |
| Arbitrage | At least 65% in equity and equity-related instruments |
| Equity savings | 65% in equity and at least 10% in debt. Net equity exposure after hedging is stated in each scheme document. |
The balanced hybrid rule that arbitrage is not permitted is easy to miss and it matters. Arbitrage positions are hedged, so they behave like cash while counting as equity for tax. A balanced hybrid fund cannot use that route to reach its equity figure.
Monthly income plans, usually shortened to MIPs, no longer exist as a category. SEBI retired the name in the 2017 recategorisation and those schemes became conservative hybrid funds. Many sites still list MIPs as a current fund type. They are not one, and the old name also implied a regular payout the scheme never undertook to make.
Life Cycle Funds, the new category
Life Cycle Funds have a target maturity date and an asset mix that moves from equity into debt as that date approaches. SEBI introduced the category on 26 February 2026 to replace solution-oriented schemes. The permitted range is written into the scheme document rather than left to a manager’s judgement.
The rules are fixed. Minimum tenure five years, maximum 30, in multiples of five. A fund house may run no more than six at any time. What the circular sets is a permitted band for each stage, not a single number, so read the band rather than assuming a steady decline.
The Glide Path for a 30-Year Fund
| Years to Maturity | Equity |
|---|---|
| 15 to 30 years | 65% to 95% |
| 10 to 15 years | 65% to 80% |
| 5 to 10 years | 50% to 65% |
| 3 to 5 years | 35% to 50% |
| 1 to 3 years | 20% to 35% |
| Under 1 year | 5% to 20% |
The exit load, meaning the charge for leaving early, is the part to read before committing. The circular sets a three-step ladder: 3% in the first year, 2% in the second, 1% in the third. After three years there is no exit load at all, so the charge discourages an early exit rather than holding you to the maturity date.
Read the bands rather than the headline. The ranges overlap at their edges, so a fund holding 65% in equity at 20 years to maturity could still hold 65% at six years and remain inside the rules. What falls on a schedule is the ceiling, not the floor.
A Life Cycle Fund may also hold units in infrastructure investment trusts, exchange-traded commodity derivatives and precious metal exchange-traded funds, alongside equity and debt.
Solution-oriented schemes: discontinued
Retirement funds and children’s funds were a separate SEBI category until 26 February 2026. The circular discontinued it. Existing schemes stopped accepting subscriptions with immediate effect and are being merged into schemes with similar asset allocation and risk, subject to SEBI approval.
If you hold one, four things are worth checking, and nobody will do it for you.
Where your money is going. The merger moves your units into another scheme. Find out which one, and whether its asset allocation matches what you signed up for.
Whether your systematic investment plan has stopped. The schemes cannot accept fresh subscriptions. An instalment that fails is not a payment that went somewhere else.
The lock-in you are still inside. These schemes typically carried a five-year lock-in or a lock-in until retirement age. Check what the merger does to it, because it does not automatically disappear.
The tax position on the merger itself. A merger of schemes is generally not treated as a transfer, so it does not usually trigger long term capital gain tax on mutual funds. Confirm it against your own scheme documents. We are not tax advisers.
Most pages describing fund types still list retirement and children’s funds as live categories. They are not
Index funds, ETFs and fund-of-funds
Passive schemes sit in SEBI’s “other schemes” group, alongside fund-of-funds. These are the exception to the one-scheme-per-category rule, because each one tracks a different index or holds a different underlying fund. A fund house may therefore run many of them at the same time, which it cannot do in any active category.
Index funds hold the constituents of an index in the same proportion as the index. A Nifty 50 index fund holds those 50 companies by weight. No manager decides what to buy.
Exchange-traded funds do the same, but trade on the stock exchange like a share. You need a demat account, which holds securities electronically, you buy at the market price rather than the day’s net asset value, which is the per-unit value of what the fund holds, and that price can sit slightly above or below what the holdings are worth.
Fund-of-funds hold units of other funds rather than shares or bonds. This matters for cost, because you pay the expense ratio of the fund-of-funds and of the underlying schemes.
International, global, emerging market, commodity and real estate funds are usually structured as fund-of-funds or as exchange-traded funds in India. A gold fund-of-funds holds units of a gold exchange-traded fund rather than gold itself.
That structure changes the tax holding period. A gold exchange-traded fund becomes long term after 12 months. A gold fund-of-funds holding the same metal takes 24 months. Both are taxed at 12.5% once they qualify. The structure, not the asset, decides when.
Active and passive, and why the gap narrowed
An active fund pays a manager to pick holdings and charges more for it. A passive fund copies an index and charges less. Index funds generally carry a lower expense ratio, the annual cost deducted from the fund, because nobody is being paid to choose holdings.
Check the figure on the factsheet of any scheme you are comparing, because the gap varies and it compounds over time.
The 2026 overlap cap makes the comparison sharper. Where a fund house previously ran two similar active schemes under different strategy labels, each charging an active fee, the portfolios must now differ by at least half. The rule does not force a fund to deviate from its benchmark. It does make it harder to charge an active fee for something close to an index.
Neither approach is better than the other. They cost different amounts and behave differently, and both are available through any distributor. The choice is yours.
Open-ended vs close-ended vs interval funds
Structure is a separate question from strategy. All the types of mutual funds above can be issued in any of three forms, and the form decides when you are allowed to buy and sell rather than what the scheme holds. Most Indian schemes are open-ended.
| Structure | How You Buy and Sell |
|---|---|
| Open-ended | Buy or redeem on any business day at that day’s net asset value. Most Indian schemes are open-ended. |
| Close-ended | Buy only during the new fund offer, the period when a scheme first sells units. Redeem at maturity. Units are listed on an exchange, though traded volume is often thin. |
| Interval | Open for a specified transaction period at set intervals. Closed in between. |
A close-ended fund listed on an exchange is not the same as liquid. If few people are trading the units, selling before maturity may mean accepting a price below what the holdings are worth.
How to tell which type of mutual fund you hold
A scheme’s category is stated in its scheme information document and on the first page of its monthly factsheet. The scheme name is not a reliable guide, and the category decides the tax treatment as well as what the fund must hold.
Three reasons to check it rather than assume.
Tax follows the category, not the name. A scheme holding more than 65% in debt and money market instruments is a specified mutual fund under Section 76 of the Income-tax Act 2025, which replaced Section 50AA of the 1961 Act, and short term capital gain tax on mutual funds then follows from the category rather than the name. For units acquired on or after 1 April 2023, gains are taxed at your slab rate however long you hold them; units bought before that date follow the ordinary rules for the scheme. The name may say nothing about either. This is general information. Check your own position with a tax professional.
The mandate is a floor, not a description. A flexi cap fund holding 80% in large caps today is still a flexi cap fund and can change that tomorrow. The category tells you what it must do, not what it is currently doing.
Categories moved in 2026. A fund you bought as a retirement scheme is being merged into something else. A value fund you bought in 2024 was allowed to hold 35% outside equity and now may hold only 20%.
The factsheet also carries the riskometer, which is SEBI’s required risk label, along with the benchmark and the expense ratio. Those three, with the category, tell you more than the scheme name ever will.
Frequently Asked Questions
There are 13 equity categories, 17 debt categories and 7 hybrid categories under SEBI’s circular of 26 February 2026, plus Life Cycle Funds and passive schemes such as index funds, exchange-traded funds and fund-of-funds. The previous framework, set in 2017, had 11 equity and 16 debt categories and a solution-oriented group that has now been discontinued.
SEBI discontinued the solution-oriented category on 26 February 2026. Those schemes stopped accepting fresh subscriptions immediately and are being merged into schemes with similar asset allocation and risk, with SEBI approval. If you hold one, check which scheme your units are moving into and what happens to any lock-in.
A Life Cycle Fund has a target maturity between five and 30 years and automatically shifts its holdings from equity into debt as that date approaches. A 30-year fund holds 65% to 95% in equity when 15 to 30 years remain, and 5% to 20% when under a year remains. A fund house may run no more than six.
A multi cap fund must hold at least 25% each in large cap, mid cap and small cap stocks, totalling a 75% minimum in equity. A flexi cap fund must hold 65% in equity but has no floor for any market cap band, so it can move freely between them.
Yes. Dividend yield, value, contra and focused funds moved from a 65% minimum in equity to 80%. ELSS was already at 80% and did not change. Fund houses had until 26 August 2026 to bring existing schemes in line, so the change has already taken effect.
A value fund and a contra fund from the same fund house may not hold more than 50% of the same portfolio. The same cap applies to sectoral and thematic schemes against other equity schemes, excluding large cap. Existing sectoral and thematic schemes have until 26 February 2029 to comply.
No. SEBI retired monthly income plans in the 2017 recategorisation and those schemes became conservative hybrid funds, which hold 10% to 25% in equity and 75% to 90% in debt. Many websites still list monthly income plans as a current type of mutual fund.
The category is stated in the scheme information document and on the first page of the monthly factsheet. The scheme name is not a reliable guide, and the category decides the tax treatment as well as what the fund must hold.
CLOSING
Dhanvantri Capital Services Private Limited, known as Dhanvantree, is an AMFI-registered mutual fund and Specialised Investment Fund distributor, ARN-194216, based in Connaught Place, New Delhi. We distribute the categories currently open to new money, from more than 30 fund houses. We do not recommend schemes and we are not tax advisers. The choice is yours.
Disclaimer: The views expressed here are of the author and do not reflect those of Dhanvantree. Mutual funds are subject to market risks, please read the scheme documents carefully before investing.