Category 01 of 05
Equity funds invest primarily in shares of listed companies. They carry the highest long-term return potential of any mutual fund category — and the most short-term volatility. SEBI requires every equity sub-category to hold at least 65% in equities; most hold 80% or more.
This isn't a loose convention — SEBI and AMFI publish an exact, ranked list of companies by market capitalisation twice a year, and every fund's category is tied to it.
| Segment | Definition |
|---|---|
| Large-cap | The top 100 companies by full market capitalisation. |
| Mid-cap | Companies ranked 101st to 250th by full market capitalisation. |
| Small-cap | Every company ranked 251st onwards. |
Must hold at least 80% in large-cap stocks. The most stable of the equity categories, but also the one where active managers have struggled hardest to beat a plain index fund in recent years, since large-cap stocks are the most closely researched and efficiently priced.
Must hold at least 35% in large-cap stocks and at least 35% in mid-cap stocks — a deliberate, mandated blend rather than a manager's free choice.
At least 65% in mid-cap stocks. Higher growth potential than large-cap, with meaningfully more volatility and less analyst coverage per company.
At least 65% in small-cap stocks. The most volatile equity category — also the least liquid in a downturn, since small-cap stocks can be hard to sell in size when everyone wants out at once.
Must hold at least 75% in equity, with a mandated minimum of 25% each in large-, mid-, and small-cap stocks. The allocation is disciplined by rule, not by the manager's view — genuine forced diversification across company sizes.
Must hold at least 65% in equity, but with no minimum split across large-, mid-, or small-cap — the manager decides freely. This is the key difference from Multi Cap: Multi Cap is rule-bound diversification, Flexi Cap is manager discretion. Pick Multi Cap if you want the guardrails; Flexi Cap if you trust the manager's judgment on where to lean.
Concentrates on a limited number of stocks (up to 30) rather than holding a broadly diversified book. Higher conviction, higher single-stock risk — a wrong call has a bigger effect on the portfolio than it would in a more diversified fund.
Invests predominantly in dividend-yielding stocks — typically more mature, cash-generative businesses. Tends to be somewhat less volatile than a pure growth-oriented equity fund, though it is still an equity fund with equity-level risk.
Value funds look for stocks that are undervalued relative to their fundamentals. Contra funds go further, deliberately buying into out-of-favour sectors and beaten-down stocks on the view they'll recover. Both carry meaningful risk of "catching a falling knife" — the call can simply be wrong, and these funds tend to lag in a strong bull market. Until early 2026, a single fund house could only offer one or the other; that restriction has since been relaxed, so some AMCs now run both.
Sectoral funds concentrate on one sector — banking, pharma, technology, infrastructure. Thematic funds are broader, spanning a theme across several related sectors (say, "consumption" or "manufacturing"). Both limit diversification by design, and sector/theme performance is often cyclical — timing matters more here than in a diversified fund.
Must invest at least 80% in equity, following the government's 2005 ELSS notification. Comes with a 3-year lock-in — the shortest of any tax-saving investment option — and is currently eligible for a deduction of up to ₹1,50,000 under Section 80C of the Income Tax Act.
A medium-to-long investment horizon (typically 5+ years) and a genuine tolerance for the value swinging around in the short term. Equity has historically outperformed most other asset classes over long holding periods, but that outperformance is only realised by investors who stay invested through the volatile stretches rather than exiting at the bottom.