NISM-Series-X-A: Investment Adviser (Level 1) · Mutual Funds

Types of Mutual Fund Schemes under SEBI Categorisation

Updated 11 October 2026 · Fact-checked

SEBI groups mutual fund schemes into equity, debt, hybrid, solution-oriented and other schemes such as index funds, ETFs and funds of funds. Each category has a fixed investment rule, such as a minimum share in large-cap stocks. To solve a question, match the scheme's asset mix or feature to its category.

Understand Types of Mutual Fund Schemes

A mutual fund pools money from many investors and invests it in securities. The same fund house can run many schemes. Before 2017, names were confusing. A "balanced" or "growth" fund could hold very different portfolios. SEBI therefore set up a categorisation framework. Each scheme must fit one category, and each category has a defined investment mandate.

There are five broad groups. Equity schemes mainly hold shares. Debt schemes hold bonds, government securities and money market instruments. Hybrid schemes mix equity and debt, and sometimes other assets. Solution-oriented schemes serve a goal and carry a lock-in of 5 years or until the goal is reached, whichever is earlier: the Retirement Fund (until retirement age) and the Children's Fund (until the child's majority). Other schemes include index funds, ETFs and funds of funds.

Within equity, categories differ by market capitalisation or style. Large cap means the 1st to 100th company by market capitalisation as per the AMFI half-yearly list. Mid cap means the 101st to 250th. Small cap means the 251st onwards. Style categories are Value, Contra, Dividend Yield and Focused. Sectoral/Thematic funds follow one sector or theme. ELSS is the tax-saving equity scheme with a 3-year lock-in.

Within debt, categories are mostly defined by the maturity or Macaulay duration of the portfolio. Examples are Overnight, Liquid, Ultra Short, Low Duration, Short, Medium and Long Duration. Other debt categories are defined by the type of paper: Corporate Bond, Credit Risk, Banking and PSU, Gilt and Floater. Hybrid categories are defined by the equity-debt split.

The second way to classify schemes is by structure. An open-ended scheme has no fixed maturity and accepts purchases and redemptions on an ongoing basis at NAV-linked prices. A closed-ended scheme has a fixed maturity. You can invest only during the new fund offer, and units are listed on a stock exchange. Its market price can differ from NAV. An interval scheme is a mix: it opens for transactions only during specified periods. The percentages below come from SEBI's categorisation circulars. Check your NISM workbook edition for any later revision.

Key formulas to remember

Large Cap Fund: At least 80% of assets in large-cap stocks; Large cap = 1st to 100th company by market capitalisation as per the AMFI half-yearly list.
Mid Cap Fund: At least 65% of assets in mid-cap stocks; Mid cap = companies ranked 101 to 250.
Small Cap Fund: At least 65% of assets in small-cap stocks; Small cap = companies ranked 251 and below.
Large & Mid Cap Fund: At least 35% in large caps and at least 35% in mid caps; Both limits apply together.
Multi Cap Fund: At least 75% in equity, with at least 25% each in large, mid and small caps; The total equity floor is 75%.
Focused Fund: At least 65% in equity and equity-related instruments, in a maximum of 30 stocks; The cap of 30 stocks is the key feature of this category.
Value and Contra Funds: At least 65% in equity and equity-related instruments, following a value or contrarian investment strategy; A fund house can offer either a Value or a Contra fund, not both.
Dividend Yield Fund: At least 65% in equity and equity-related instruments, predominantly in dividend-yielding stocks; The portfolio focus on dividend-yielding stocks is what sets this category apart.
Sectoral/Thematic Fund: At least 80% in stocks of the chosen sector or theme; This is the least diversified equity category.
ELSS: At least 80% in equity; 3-year lock-in; The lock-in applies to each instalment, including each SIP instalment.
Overnight and Liquid Funds: Overnight: securities maturing in 1 day. Liquid: maturity up to 91 days; Money Market funds hold instruments up to 1 year.
Debt duration bands: Ultra Short 3-6 months; Low Duration 6-12 months; Short 1-3 years; Medium 3-4 years; Medium to Long 4-7 years; Long above 7 years; These are Macaulay durations of the portfolio, not simple maturity.
Debt type-based categories: Corporate Bond: at least 80% in AA+ and above. Credit Risk: at least 65% in AA and below. Banking and PSU: at least 80% in banks, PSUs and public financial institutions. Gilt: at least 80% in government securities. Floater: at least 65% in floating rate instruments; Gilt Fund with 10-year constant duration is a separate category from the Gilt Fund. It needs at least 80% in government securities, such that the portfolio Macaulay duration equals 10 years.
Hybrid equity ranges: Conservative: 10-25% equity, 75-90% debt. Balanced: 40-60% equity, 40-60% debt, no arbitrage. Aggressive: 65-80% equity, 20-35% debt; Dynamic Asset Allocation (Balanced Advantage) funds switch between equity and debt with no fixed range.
Other hybrid categories: Multi Asset: at least 10% each in at least three asset classes. Arbitrage: at least 65% in equity and equity-related instruments, under an arbitrage strategy. Equity Savings: at least 65% in equity and equity-related instruments and at least 10% in debt; Arbitrage uses hedging with derivatives. In Equity Savings, the equity may be hedged or unhedged, and the scheme must state the minimum hedged and unhedged portions in its asset allocation.
Index Funds and ETFs: At least 95% in securities of the underlying index (ETFs: the index or ETF securities); These are passive schemes. They aim to track an index and not beat it.
Retirement Fund: Lock-in of 5 years or until retirement age, whichever is earlier; This is a solution-oriented scheme for retirement planning.
Children's Fund: Lock-in of 5 years or until the child attains majority, whichever is earlier; This is a solution-oriented scheme for a child's future needs.

How to solve Types of Mutual Fund Schemes questions

Most questions give you a scheme feature and ask for the category, or name a category and ask for its rule. Use the same routine each time.

1Read the stem and note the key clue: asset mix, market cap band, maturity, lock-in or structure.
2Decide the broad group first: equity, debt, hybrid, solution-oriented or other.
3Match the clue to the category. Use the percentage, the duration band or the stock count.
4Check the wording: "at least", "up to", "maximum" and "between" change the answer.
5For structure questions, ask: can I buy and redeem any day (open-ended) or only at NFO and maturity (closed-ended)?
6Eliminate options that belong to another group or that quote a number from a different category.
7If two options look close, compare the exact numbers from your formula list and choose the one that fits fully.

Quickest way: Group first, then number

When to use it: Use when you have under a minute per question and the options contain several similar categories or percentages.

Spot the group: shares, bonds, mix, goal lock-in or index.
Recall the single number tied to that category: 80, 65, 95 or a duration band.
Large cap and sectoral are 80. Most other equity categories are 65. Index is 95.
For hybrids, place the equity share on the ladder: 10-25, 40-60, 65-80.
For debt, place maturity on the ladder: 1 day, 91 days, 3-6 months, 6-12 months, 1-3, 3-4, 4-7, over 7 years.

Common mistakes in Types of Mutual Fund Schemes

Treating all equity categories as needing the same minimum equity
Students memorise "65%" and apply it everywhere.
Fix: Remember the exceptions: Large Cap and Sectoral/Thematic 80%, ELSS 80%, Multi Cap 75%, Large & Mid 35% each.
Mixing up large, mid and small cap definitions
The rank bands (1-100, 101-250, 251 onwards) look similar.
Fix: Fix the boundaries 100 and 250. Anything ranked 251 or lower is small cap.
Confusing maturity with Macaulay duration in debt categories
Both measure time, and the stems use them loosely.
Fix: Overnight, Liquid and Money Market are defined by maturity. Ultra Short through Long Duration are defined by Macaulay duration.
Saying closed-ended funds can be redeemed any day
Students know the exchange listing and assume it works like open-ended redemption.
Fix: Closed-ended units are redeemed at maturity. Before that you sell on the exchange at the market price, which may differ from NAV.
Thinking the ELSS lock-in applies once to the whole SIP
Students assume the lock-in starts on the first investment.
Fix: Each instalment has its own 3-year lock-in from the date it is invested.
Calling index funds actively managed or expecting them to beat the index
Students link all funds with fund manager skill.
Fix: Index funds and ETFs are passive. They aim to replicate the index, so a small tracking error is expected.

Worked examples

Example 1

Under SEBI's categorisation, a Large Cap Fund must invest at least what percentage of its total assets in large-cap stocks? (a) 65% (b) 75% (c) 80% (d) 95%

Show the solution

Identify the category: equity, Large Cap.
Recall the rule: large cap funds hold at least 80% in large-cap stocks.
Option (a) 65% is the floor for Mid Cap, Small Cap and style funds.
Option (b) 75% is the total equity floor for Multi Cap.
Option (d) 95% is the floor for index funds and ETFs.
Only (c) matches the Large Cap rule.

Answer: (c) 80%

Example 2

A scheme keeps 70% of its assets in equity and 30% in debt as a stated, fixed allocation. Which SEBI category fits best? (a) Conservative Hybrid Fund (b) Balanced Hybrid Fund (c) Aggressive Hybrid Fund (d) Dynamic Asset Allocation Fund

Show the solution

Broad group: hybrid, since both equity and debt are held.
Equity share is 70%. Debt share is 30%.
Conservative Hybrid has 10-25% equity, so 70% is too high.
Balanced Hybrid has 40-60% equity, so 70% is too high.
Dynamic Asset Allocation (Balanced Advantage) funds switch between equity and debt with no fixed range, so a fixed 70/30 split does not fit.
Aggressive Hybrid has 65-80% equity and 20-35% debt, so 70/30 fits.

Answer: (c) Aggressive Hybrid Fund

Exam tips

Learn the numbers as a table in your head: 80 for large cap and sectoral, 75 for multi cap, 65 for most other equity, 95 for index, 35 and 35 for large & mid.
Expect scenario questions that describe a portfolio and ask you to name the category, not only recall questions.
Watch the words "open-ended", "closed-ended" and "interval". Options often swap them.
In the X-A paper, wrong answers lose 25% of the question's marks, so a 2-mark caselet question costs more to guess. Skip only if you cannot narrow down to two options.
Check the percentages in your current NISM workbook edition. SEBI revises category rules from time to time.

Practice questions from Mutual Funds

Types of Mutual Fund Schemes in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Types of Mutual Fund Schemes: frequently asked questions

How many categories has SEBI set for mutual fund schemes?

SEBI groups schemes into five broad groups: equity, debt, hybrid, solution-oriented and other schemes. Each group has several defined categories with their own investment rules. The exam tests the group, the category and the key percentage.

What is the difference between open-ended and closed-ended funds?

An open-ended fund has no fixed maturity and lets you buy and redeem units on an ongoing basis at NAV-linked prices. A closed-ended fund has a fixed maturity. You invest during the NFO, and later you can sell units on the exchange where they are listed. The market price may differ from NAV.

Which hybrid categories should I remember for NISM?

Remember the equity ranges for Conservative (10-25%), Balanced (40-60%) and Aggressive (65-80%) hybrid funds. Also know Dynamic Asset Allocation, Multi Asset Allocation, Arbitrage and Equity Savings. Arbitrage needs at least 65% in equity and equity-related instruments under an arbitrage strategy. Equity Savings needs at least 65% in equity (hedged or unhedged) and at least 10% in debt.

Are index funds and ETFs the same thing?

Both are passive and track an index. An index fund is bought and redeemed from the fund house at NAV. An ETF is bought and sold on a stock exchange at the market price during trading hours.