Equity funds demystified: large cap, mid cap, small cap and the SEBI rulebook

Before October 2017, a fund house could run fourteen equity schemes with overlapping mandates and names that told you nothing. “Opportunities”, “Advantage”, “Prima”, “Bluechip” — none of these were defined terms, and two funds with near-identical portfolios could sit in completely different marketing categories.

SEBI’s categorisation circular ended that. Every open-ended scheme now sits in exactly one defined box, an AMC may generally run only one scheme per box, and the box comes with a binding rule about what the fund must hold.

This is the single most useful piece of structure in Indian mutual funds, and it is the reason a comparison is only meaningful inside one category.

The groups

Schemes are grouped as Equity, Debt, Hybrid and Other — the last being index funds, ETFs and fund-of-funds. There was for many years a fifth, Solution Oriented (retirement and children’s funds, carrying a lock-in), which SEBI’s revised framework has discontinued on the reasoning that those schemes’ portfolios were rarely distinguishable from ordinary equity or hybrid funds. Existing schemes have been required to stop accepting fresh subscriptions, with a glide-path product replacing them — see investing for children’s education if you hold one.

Within those, the categories that matter most to a retail investor are the equity ones, and they are defined by market capitalisation.

How large, mid and small are defined

They are not defined by opinion or by rupee thresholds. They are defined by rank:

• Large cap — the top 100 companies by full market capitalisation
• Mid cap — the 101st to the 250th
• Small cap — the 251st onwards

AMFI publishes that ranked list every six months, and every fund has to work to it. A company that grows out of the small-cap band changes what a small-cap fund is allowed to hold, which is why these funds do a certain amount of forced churn.

The categories then impose a floor:

• Large Cap — at least 80% in large caps
• Mid Cap — at least 65% in mid caps
• Small Cap — at least 65% in small caps
• Multi Cap — at least 25% in each of large, mid and small
• Flexi Cap — at least 65% in equity, with no constraint on where across the three bands it sits

Flexi Cap was carved out in 2020 precisely because the Multi Cap rule was tightened; before that, most “multi cap” funds were run as what is now called flexi cap. If you are looking at a long track record for a Flexi Cap fund, remember that part of that record was earned under a different mandate.

Alongside these sit the style and structure categories — Value and Contra, Focused (a hard cap of 30 holdings), Dividend Yield, Sectoral/Thematic, and ELSS with its three-year lock-in.

What the revised framework changed

SEBI’s categorisation review has tightened several of these, and the direction is consistent: fewer, more distinct products, held more strictly to label.

• Higher equity floors. Dividend Yield, Value, Contra, Focused and ELSS now carry a minimum of 80% in equity, up from 65%.
• Portfolio overlap caps. An AMC may now offer both a Value and a Contra fund — previously it was one or the other — provided the overlap between them stays under 50%. A similar 50% overlap cap applies between a sectoral or thematic scheme and the AMC’s other equity schemes, large-cap funds excepted, measured periodically on portfolio values.
• Sectoral and thematic become separate categories rather than one, taking the count of equity categories up.
• Solution Oriented discontinued, with Life Cycle Funds introduced in its place — target-dated schemes running a glide path, with graded exit loads and a cap on how many an AMC may launch.
• New debt categories, including a sectoral debt category with its own 80% floor.

Existing schemes are being transitioned over a defined period, longer for thematic funds than for the rest.

⚠️ This framework has been revised more than once and schemes are still being transitioned into it. Treat every figure here as a summary and check the scheme information document before relying on any specific number.

Why this is the whole point of a peer group

A fund’s return over any window is mostly the return of the things it was obliged to hold. In a year when small caps run 40% and large caps do 8%, the worst small-cap fund in the country will beat the best large-cap fund, and this tells you precisely nothing about either manager.

So every ranking on this site is computed within a sub-category, against the fund’s actual peer group, and never across the whole universe. The star rating means “compared with the funds it is genuinely competing against” — the reasoning is set out in full on the methodology page.

The practical rules that follow:

1. Decide the category first, the fund second. The category choice is an asset-allocation decision and it dominates the outcome. Which small-cap fund you pick matters far less than how much of your money is in small caps at all.
2. Never compare a 3-year return across categories. You are comparing two market regimes, not two managers.
3. Check what the fund is obliged to hold, not what it is called. The category floor is enforceable; the scheme name is marketing.

Where to look

Browse by category lists every SEBI category with its funds ranked inside it, and Categories shows how the universe is distributed across them. The glossary defines the ranking terms, and the screener lets you filter to one category before you sort by anything at all — which is the order those two operations belong in.

Key takeaway

Since 2017 every scheme sits in one defined box with an enforceable rule about what it must hold, and market-cap bands are set by rank — top 100, 101–250, 251 onwards — not opinion. Decide the category before the fund, because the category choice dominates the outcome, and never compare a return across two of them: you would be comparing market regimes, not managers.