Fund Categories Explained
Lesson 2 of 5 in Mutual Funds & SIP Mastery · 10 min read
SEBI classifies mutual funds into categories so that investors can compare like with like.
Equity funds
Large cap, mid cap, small cap, flexi cap, ELSS and sectoral funds invest mainly in shares. They suit horizons of five years or more and can be volatile in the short term.
Debt funds
Liquid, short duration, corporate bond and gilt funds invest in fixed-income instruments. Key risks are interest-rate risk and credit risk.
Hybrid funds
Aggressive hybrid, balanced advantage and multi-asset funds combine equity, debt and sometimes gold.
Passive funds
Index funds and ETFs track a market index at low cost instead of trying to beat it.
Matching category to goal
Short-term goals generally call for stability; long-term goals can accept more volatility in exchange for growth potential.
Key takeaways
- Equity funds suit long horizons
- Debt funds focus on stability and income
- Hybrid funds blend both