Before 2017, two funds with similar names could hold wildly different things. SEBI's scheme categorisation fixed that: equity fund labels now carry defined rules, so "small-cap fund" means a fund that genuinely holds small-caps. Knowing the definitions tells you what risk you're actually taking.
How "cap" is defined
Market-cap buckets are set by an AMFI list updated every six months, ranked by full market capitalisation:
- Large-cap — the top 100 companies.
- Mid-cap — ranks 101 to 250.
- Small-cap — 251st onward (everything below the top 250).
So these aren't vibes; they're a precise, periodically refreshed ranking.
What each fund must hold
- Large-cap fund — at least 80% in large-caps. Steadiest of the equity lot.
- Mid-cap fund — at least 65% in mid-caps. Higher growth potential, higher volatility.
- Small-cap fund — at least 65% in small-caps. Highest potential return and the deepest drawdowns; can fall 50%+ in bad years.
- Large & Mid-cap fund — at least 35% each in large and mid.
- Multi-cap fund — at least 75% equity, with a minimum 25% each in large, mid and small (a mandated spread).
- Flexi-cap fund — at least 65% equity, but any mix across caps at the manager's discretion. Flexible, manager-dependent.
- ELSS — equity-linked savings scheme, with a 3-year lock-in and Section 80C benefit (old regime).
Other defined types include focused (max 30 stocks), value/contra, dividend yield, sectoral/thematic (concentrated bets on one sector — high risk), and index funds.
The risk ladder
As a rule of thumb, volatility rises as you go down the cap scale: large < mid < small. A small-cap fund can deliver spectacular returns in a bull run and brutal losses in a downturn — it belongs only in a long-horizon, risk-tolerant slice of a portfolio, not your "safe" money.
Why this matters when you choose
The label now tells you the mandate, not just the marketing. If you want a stable core, a large-cap or flexi-cap (or a large-cap index fund) fits. If you're adding a high-risk satellite for the long term, a mid- or small-cap might — sized small. The categorisation also makes comparison fair: you're judging like against like, against the right benchmark.
Read the category before the past returns. The category tells you how the fund will behave when markets turn; last year's return doesn't.