SEBI Fund Categorization Rules – Simplified

In this blog, we break down the five broad fund categories, explain how they work, and show how this reform made investing easier — with a relatable real-life example.

What Are SEBI’s Fund Categorization Rules? 

 SEBI mandates that each mutual fund scheme fits clearly into one of the five categories:

1. Equity Funds – Minimum 65% in equity (e.g., Large Cap, Flexi Cap, ELSS)
2. Debt Funds – Primarily invest in fixed income (e.g., Liquid, Short Duration)
3. Hybrid Funds – Combine equity and debt in defined ratios (e.g., Aggressive Hybrid, BAF)
4. Solution-Oriented Funds – Goal-linked with lock-ins (e.g., Retirement Fund)
5. Other Funds – Include ETFs, Index Funds, and FoFs

SEBI also defined sub-categories under each, with clear mandates, so no fund overlaps another in strategy or naming.

Real-Life Example: Kavya Cleans Her Portfolio Kavya, a 30-year-old IT professional, held 9 mutual funds, many of which were labeled “balanced,” “equity-oriented,” or “growth.” Post-SEBI rules:

• 2 were reclassified as Aggressive Hybrid Funds
• 1 became a Balanced Advantage Fund
• 2 others were merged into a Flexi Cap Fund

This cleanup simplified her holdings. She now clearly knows which fund is for long-term growth (Equity), medium-term balance (Hybrid), and short-term safety (Debt).

Why These Rules Matter to Investors 

 ✅ No overlap – One scheme per sub-category

✅ Standard definitions – Clear understanding of fund risk/return

✅ Better comparison – Apples-to-apples evaluation
✅ Cleaner portfolios – Helps avoid duplication

Conclusion 

 SEBI’s categorization rules were a game-changer. Investors now have clarity and control. By understanding these five buckets, you can better align funds with your goals, risk appetite, and time horizon — and avoid the clutter of unnecessary or confusing schemes. 

🧾 Review your current funds — do they fit into these SEBI-defined buckets?

📊 Talk to your advisor about portfolio overlap and duplication.

🎯 Use SEBI’s clarity to align investments with life goals.

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Summary Table: SEBI Mutual Fund Categories

Category	Common Subtypes	Avg Return (5 Yr CAGR)	Avg Risk (Volatility)	Avg Investor Behaviour
Equity Funds	Large Cap, Mid Cap, Flexi Cap, ELSS	10% – 14%	High	Long-term focused, prefers SIPs
Debt Funds	Liquid, Corporate Bond, Short Duration	5% – 7%	Low to Medium	Safety-seeking, conservative investing
Hybrid Funds	Aggressive Hybrid, Balanced Advantage	8% – 11%	Medium	Moderate investors seeking balance
Solution-Oriented	Retirement Fund, Children’s Education Fund	7% – 9%	Medium	Goal-based, long lock-in, SIP investors
Other Funds	Index Funds, ETFs, Fund of Funds	9% – 12%	Market-dependent