There are different categories of Mutual Fund schemes that are available currently. Different schemes launched by a Mutual Fund are clearly distinct in terms of asset allocation, investment strategy etc.
In order to bring uniformity in the characteristics of similar types of schemes launched by different Mutual Funds, SEBI issued a circular SEBI/HO/IMD/DF3/CIR/P/2017/114 dated Oct 06, 2017 for categorization and rationalization of Mutual Fund schemes.
Categories of Mutual Fund Schemes:
- Equity Schemes
- Debt Schemes
- Hybrid Schemes
- Solution Oriented Schemes
- Other Schemes
1. Equity Scheme:
An equity scheme is a category of mutual fund scheme that primarily invests in equities and equity related instruments (more than 65% of the total asset allocation). This scheme might be suitable for the investors having higher risk appetite and longer investment horizon.
Equity Schemes Sub-Category:
Scheme Category | Scheme Characteristics | Type of Scheme (Uniform Description of the Scheme) |
Multi-Cap Fund | Minimum investment in equity & equity related instruments -
75% of total assets in the following manner:
a) Minimum investment in equity & equity related instruments of large cap companies - 25% of total assets;
b) Minimum investment in equity & equity related instruments of mid cap companies - 25% of total assets;
c) Minimum investment in equity & equity related instruments of small cap companies - 25% of total assets | An open ended equity scheme investing across large cap, mid cap, small cap stocks |
Flexi Cap Fund | Minimum Investment in equity & equity related instruments – 65% of total assets | An open ended dynamic equity scheme investing across large cap, mid cap, small cap stocks |
Large Cap Fund | Minimum investment in equity & equity related instruments of large cap companies- 80% of total assets | An open ended equity scheme predominantly investing in large cap stocks |
Large and Mid cap Fund | Minimum investment in equity & equity related instruments of large cap companies-
35% of total assets
Minimum investment in equity & equity related instruments of mid cap stocks- 35% of total assets | An open ended equity scheme investing in both large cap and mid cap stocks. |
Mid cap Fund | Minimum investment in equity & equity related instruments of mid cap companies- 65% of total assets | An open ended equity scheme predominantly investing in mid cap stocks |
Small cap Fund | Minimum investment in equity & equity related instruments of small cap companies- 65% of total assets | An open ended equity scheme predominantly investing in small cap stocks |
Dividend Yield Fund | The scheme should predominantly invest in dividend yielding stocks. Minimum investment in equity - 65% of total assets | An open ended equity scheme predominantly investing in dividend yielding stocks |
Value Fund | The scheme should follow a value investment strategy. Minimum investment in equity & equity related instruments - 65% of total assets | An open ended equity scheme following a value investment strategy |
Contra Fund | The scheme should follow a contrarian investment strategy. Minimum investment in equity & equity related instruments - 65% of total assets | An open ended equity scheme following contrarian investment strategy |
Focused Fund | A scheme focused on the number of stocks (maximum 30) Minimum investment in equity & equity related instruments - 65% of total assets | An open ended equity scheme investing in maximum 30 stocks (mention where the scheme intends to focus, viz., multi cap, large cap, mid cap, small cap) |
Sectoral/Thematic Fund | Minimum investment in equity & equity related instruments of a particular sector/ particular theme- 80% of total assets | An open ended equity scheme investing in a certain sector/ An open ended equity scheme following a certain theme |
ELSS | Minimum investment in equity & equity related instruments - 80% of total assets (in accordance with Equity Linked Saving Scheme, 2005 notified by Ministry of Finance) | An open ended equity linked saving scheme with a statutory lock in of 3 years and tax benefit |
Mutual Funds are allowed to offer either a value fund or Contra fund at a time.
Mutual Funds are allowed to have either ELSS scheme as per this category or passive ELSS (under the Category - Others).
2. Debt Scheme:
Where the Debt Schemes are Invested?
A debt scheme (also known as a Fixed Income fund) primarily invests in bonds or other debt securities (long term and short term), such as debentures, commercial papers, certificates of deposit and others that may be issued by government, public financial institutions,Commercial Banks and corporates. These schemes are categorized based on the tenure of securities and/or basis of the issuer of the securities and/or fund management strategies.
Debt Scheme Sub-Category:
Scheme Category | Scheme Characteristics | Type of Scheme (Uniform Description of the Scheme) |
Overnight Funds | Investment in overnight securities having maturity of 1 day** | An open ended debt scheme investing in overnight securities |
Liquid Fund | Investment in Debt and money market securities with maturity of upto 91 days only | An open ended liquid scheme |
Ultra Short Duration Fund | Investment in Debt & Money Market instruments such that the Macaulay duration of the portfolio is between 3 months to 6 months | An open ended ultrashort term debt scheme investing in instruments such that the Macaulay duration of the portfolio is between 3 months to 6 months |
Low Duration Fund | Investment in Debt & Money Market instruments such that the Macaulay duration of the portfolio is between 6 months to 12 months | An open ended low duration debt scheme investing in instruments such that the Macaulay duration of the portfolio is between 6 months to 12 months |
Money Market Fund | Investment in Money Market instruments having maturity up to 1 year | An open ended debt scheme investing in money market instruments |
Short Duration Fund | Investment in Debt & Money Market instruments such that the Macaulay duration of the portfolio is between 1 year to 3 years | An open ended short term debt scheme investing in instruments such that the Macaulay duration of the portfolio is between 1 year to 3 years |
Medium Duration Fund | Investment in Debt & Money Market instruments such that the Macaulay duration of the portfolio is between 3 years to 4 years.
Portfolio Macaulay duration under anticipated adverse situation is 1 year to 4 years | An open ended medium term debt scheme investing in instruments such that the Macaulay duration of the portfolio is between 3 years to 4 years |
Medium to Long Duration Fund | Investment in Debt & Money Market instruments such that the Macaulay duration of the portfolio is between 4 to 7 years.
Portfolio Macaulay duration under anticipated adverse situation is 1 year to 7 years | An open ended medium term debt scheme investing in instruments such that the Macaulay duration of the portfolio is between 4 years to 7 years |
Long Duration Fund | Investment in Debt & Money Market Instruments such that the Macaulay duration of the portfolio is greater than 7 years | An open ended debt scheme investing in instruments such that the Macaulay duration of the portfolio is greater than 7 years |
Dynamic Bond | Investment across duration | An open ended dynamic debt scheme investing across duration |
Corporate Bond Fund | Minimum investment in corporate bonds- 80% of total assets (only in AA+ and above rated corporate bonds) | An open ended debt scheme predominantly investing in AA+ and above rated corporate bonds |
Credit Risk Fund | Minimum investment in corporate bonds- 65% of total assets (only in AA* and below rated corporate bonds) | An open ended debt scheme predominantly investing in AA and below rated corporate bonds (excluding AA+ rated corporate bonds) |
Banking and PSU Fund | Minimum investment in Debt instruments of banks, Public Sector Undertakings, Public Financial Institutions and Municipal Bonds - 80% of total assets | Minimum 80% in Debt instruments of banks, Public Sector Undertakings, Public Financial Institutions and Municipal Bonds |
Gilt Fund | Minimum investment in Gsecs. 80% of total assets (across maturity) | An open ended debt scheme investing in government securities across maturity |
Gilt Fund with 10 year constant Duration | Minimum investment in Gsecs. 80% of total assets such that the Macaulay duration of the portfolio is equal to 10 years | An open ended debt scheme investing in government securities having a constant maturity of 10 years |
Floater Fund | Minimum investment in floating rate instruments (including fixed rate instruments converted to floating rate exposures using swaps/derivatives)- 65% of total assets | An open ended debt scheme predominantly investing in floating rate instruments (including fixed rate instruments converted to floating rate exposures using swaps/derivatives) |
Overnight funds can deploy, not exceeding, 5% of the net assets of the scheme in G-secs and/or T-bills with a residual maturity of upto 30 days for the purpose of placing the same as margin and collateral for certain transactions.
Provisions of SEBI Circular No SEBI/IMD/DF/19/2010 dated November 26, 2010 shall be followed for Uniform cut-off timings for applicability of Net Asset Value in respect of Liquid Fund and Overnight Fund.
All provisions mentioned in SEBI circular SEBI/IMD/CIR No.13/150975/ 09 dated January 19, 2009 in respect of liquid schemes shall be applicable
Words/ phrases that highlight/ emphasize only the return aspect of the scheme shall not be used in the name of the scheme (for instance Credit Opportunities Fund, High Yield Fund, Credit Advantage etc.)
With respect to the Medium Duration Fund and Medium to Long Duration Fund, the characteristics of the scheme shall remain the same under normal circumstances. However, the fund manager, in the interest of investors, may reduce the portfolio duration of the aforementioned schemes up to one year, in case he has a view on interest rate movements in light of anticipated adverse situation. The AMC shall be required to mention its asset allocation under such adverse situation in its offer documents.
Whenever the portfolio duration is reduced below the specified floors of 3 years and 4 years in respect of Medium Duration Fund and Medium to Long Duration Fund respectively, the AMC shall be required to record the reasons for the same with adequate justification and maintain the same for inspection. The written justifications shall be placed before the Trustees in the subsequent Trustee meeting. Further, the Trustees shall also review the portfolio and report the same in their Half Yearly Trustee Report to SEBI.
3. Hybrid Scheme:
Where the Hybrid Schemes are Invested?
Hybrid schemes invest in a mix of equities and debt securities. They seek to find a ‘balance’ between growth and income by investing in both equity and debt.
Scheme Category | Scheme Characteristics | Type of Scheme (Uniform Description of the Scheme) |
Conservative Hybrid Fund | Investment in equity & equity related instruments- between 10% and 25% of total assets; Investment in Debt instruments- between 75% and 90% of total assets | An open ended hybrid scheme investing predominantly in debt instruments |
Balanced Hybrid Fund | Equity & Equity related instruments- between 40% and 60% of total assets;
Debt instruments- between 40% and 60% of total assets No Arbitrage would be permitted in this scheme | An open ended balanced scheme investing in equity and debt instruments |
Aggressive Hybrid Fund | Equity & Equity related instruments- between 65% and 80% of total assets;
Debt instruments- between 20% - 35% of total assets | An open ended hybrid scheme investing predominantly in equity and equity related instruments |
Dynamic Asset Allocation or Balanced Advantage Fund | Investment in equity/ debt that is managed dynamically | An open ended dynamic asset allocation fund |
Multi Asset Allocation Fund | Invests in at least three asset classes with a minimum allocation of at least 10% each in all three asset classes | An open ended scheme investing in “names of the asset classes” |
Arbitrage Fund | Scheme following arbitrage strategy. Minimum investment in equity & equity related instruments65% of total assets | An open ended scheme investing in arbitrage opportunities |
Equity Savings | Minimum investment in equity & equity related instruments- 65% of total assets and
minimum investment in debt- 10% of total assets Minimum hedged & unhedged to be stated in the SID.
Asset Allocation under defensive considerations may also be stated in the Offer Document | An open ended scheme investing in equity, arbitrage and debt |
Mutual Funds are permitted to offer either an Aggressive Hybrid fund or Balanced fund.
Foreign securities will not be treated as a separate asset class
4. Solution Oriented Schemes:
Where are the Solution Oriented schemes invested?
The Solution oriented can be Retirement and Children fund. Furthermore, SEBI as such is not prescribing any specific asset allocation for this. This is left to the discretion of AMC to decide and approach SEBI for approval before launch of such schemes.
Scheme Category and its Characteristics:
Scheme Category | Scheme Characteristics | Type of scheme (uniform description of scheme) |
Retirement Fund | Scheme having a lock-in for at least 5 years or till retirement age whichever is earlier | An open ended retirement solution oriented scheme having a lock-in of 5 years or till retirement age (whichever is earlier) |
Children’s Fund | Scheme having a lock-in for at least 5 years or till the child attains age of majority whichever is earlier | An open ended fund for investment for children having a lock-in for at least 5 years or till the child attains age of majority (whichever is earlier) |
5. Other Schemes:
Other schemes include the following funds:
a. Index Funds - Index Funds are investment funds that follow a particular benchmark index. When an investor puts money in the index fund, the said amount will be then invested in all the constituents that make a particular index which in turn gives the investor a more diversified portfolio.
b. Exchange Traded Funds (ETFs) - An Exchange-Traded Fund (ETF) is an instrument that tracks an index, a commodity or invests in money market instruments. The trading value of an ETF is based on the net asset value of the underlying assets it represents.
c. Fund of Funds schemes (Overseas and Domestic) - These funds that invest in other mutual fund schemes .
Scheme Category and its Characteristics:
Scheme Category | Scheme Characteristics | Type of scheme (uniform description of scheme) |
Index Fund/ETFs | Minimum investment in securities of a particular index (which is being replicated/ tracked)- 95% of total assets | An open ended scheme replicating/ tracking _ index |
Fund of Funds (Overseas/ Domestic | Minimum investment in the underlying fund - 95% of total assets | An open ended fund of fund scheme investing in fund (with a mention of the underlying fund) |
Conclusion:
Mutual Funds are required to strictly adhere to the scheme characteristics and asset allocation patterns that have been stated above. This is applicable to all existing and new schemes launched by all Mutual Funds.
Disclaimer - Please note that this article or document has been prepared on the basis of internal data/ publicly available information and other sources believed to be reliable. The information contained in this article or document is for general purposes only and not a complete disclosure of every material fact. It should not be construed as investment advice to any party in any manner. The article does not warrant the completeness or accuracy of the information and disclaims all liabilities, losses and damages arising out of the use of this information. Readers shall be fully liable/responsible for any decision taken on the basis of this article or document.
Mutual Fund investments are subject to market risks, read all scheme related documents carefully.
Published on Dec 31 2024.
