Equity Mutual Fund Categories :While discussing mutual funds, their performance, NAV and rankings, you must have heard mention of blue chip funds or large-cap funds. Funds with both the names invest mainly in leading companies of the market. In such a situation, many times this question may come to mind that what is the meaning of different names and categories of mutual funds including blue chip fund, large cap fund and on what basis are they separated from each other? First of all let us know the meaning of blue chip fund and large cap fund.
No mention of blue chip fund in SEBI’s circular
If you look at SEBI’s circular issued in 2018 giving information about different categories of mutual funds, there is no mention of blue chip funds in it. This is because, if a fund invests in the top 100 listed companies according to market capitalization, then it is kept in the category of large-cap mutual fund. Blue chip companies are also called market giants. Blue chip funds also invest in shares of top 100 companies only. And in this respect they are also large cap funds. Simply put, blue chip funds are also large cap funds. Only their nomenclature is different. Therefore, if you ever see Blue Chip Fund written in the name of any scheme, then understand that it is also a large cap fund. According to SEBI definition, large cap funds mainly invest in those companies which are included in the top 100 companies of the market in terms of market capitalization.
Actually, SEBI has divided mutual funds into many different categories so that investors can select the right scheme according to their needs and risk appetite. You can know the meaning of these major categories here:
Also read: NFO Review: Subscription is open in ICICI Pru’s new fund offer, focus on possibilities related to rural development, should you invest?
large cap fund
Large cap funds invest at least 80% of their corpus in stocks of those companies which are included in the top 100 companies of the market in terms of market cap. Due to being quite large, these companies are generally considered strong and give stable returns. That means the risk in these is considered comparatively less.
mid cap funds
These funds invest at least 65% of their corpus in mid-cap stocks. Mid cap stocks are the shares of those companies which fall from 101st to 250th in the market in terms of market cap. These companies are generally considered to have more growth potential and ability to give high returns than large caps, but the risk in them is also higher than them.
Also read: Tax Saving with High Return: Top ELSS funds make money 3 to 4 times in 5 years, along with the opportunity to save tax, have you invested?
small cap funds
These funds invest at least 65% of their corpus in small cap stocks. Small cap stocks are those shares of companies whose rank in terms of market capitalization is at or below 251st in the market. Both the return potential and risk in these stocks are considered higher than large cap and mid cap.
Diversified funds like multi cap, flexi cap
In mutual funds, categories of large cap, mid cap and small cap are formed on the basis of investment in different segments of market cap. But there are many diversified funds which invest by dividing them into all these categories. Flexi cap and multi cap are popular categories of such funds. In the portfolio of multi cap fund, the share of large cap, mid cap and small cap is 25-25%, whereas in flexi cap this share is not fixed. Fund managers can invest in shares of all three segments, large, mid and small cap, as per their understanding. Apart from these, there are also large and mid cap funds, which invest at least 35% in large caps and minimum the same amount in mid caps.
Also read: SIP for Better Return: Start with Rs 5000 every month, you can accumulate Rs 1 crore in 20 years, step-up SIP will help.
Other major categories of equity funds
Apart from the categories mentioned above, equity mutual funds also Sectoral or Thematic Fund, Focused Fund, Equity Linked Savings Scheme (ELSS), Value Fund, Contra Fund, Dividend Yield Fund Many other categories are also included. Among these, equity exposure in sectoral or thematic funds and ELSS is at least 80%, while in other categories of funds it is necessary to invest at least 65% in equity.
How to select the right fund?
It is not easy to choose the right fund category and then the right scheme for yourself among so many categories of equity funds. But one thing should always be remembered that it is better to invest in equity funds for the long term. Apart from this, regular investment through Systematic Investment Plan (SIP) helps in keeping the risk low. Diversified funds are generally considered less risky than sectoral or thematic funds.
Also read : Mutual Fund Investment: Mutual Fund Dividend Plan or SWP – What is right for retirement planning? Where to invest for regular income
take decisions wisely
While deciding to invest in any equity fund, investors should consider their risk appetite, investment objective and investment period. It is very important to understand the different categories of mutual funds and choose the right fund as per your needs. Only investment done with right strategy and wisdom can give better returns.
(Disclaimer: The purpose of this article is only to provide information, not to recommend investment. Take any investment decision only after taking the advice of your investment advisor.)
