Mutual fund scheme categorisation, explained

Mutual fund scheme categorisation is the SEBI framework that fixes what an open-ended scheme may call itself and what it must hold to keep that name. Each category carries a defined investment universe and a minimum allocation, so a fund labelled a large cap fund cannot quietly run a small cap portfolio. Mutual fund scheme categorisation was reset by a SEBI circular dated 26 February 2026, which discontinued the solution-oriented group and added a new one. This page explains how the framework works and what changed. It is not investment advice.

Why does mutual fund scheme categorisation exist?

Before the framework, scheme names were marketing copy. Two funds both called balanced or opportunities could hold entirely different things, and an investor comparing them was comparing labels rather than mandates. SEBI standardised the categories through a circular dated 6 October 2017, numbered SEBI/HO/IMD/DF3/CIR/P/2017/114, which defined the categories and the market capitalisation bands underneath the equity ones.

That framework ran for roughly eight years. After a consultation paper published in July 2025, SEBI issued a fresh circular on Categorization and Rationalization of Mutual Fund Schemes dated 26 February 2026, numbered HO/24/13/15(2)2026-IMD-RAC4/I/5764/2026. It is the operative framework now.

What are the broad groups of schemes?

Under the current framework, open-ended schemes sit in these groups:

The equity group is where the market capitalisation definitions bite. Which stocks count as large, mid or small cap is not decided by each fund house: it comes off a list AMFI publishes twice a year. See AMFI large, mid and small cap classification for how that list is built.

What did the February 2026 circular change?

Four changes matter most when reading a scheme's disclosures:

• Solution-oriented schemes were discontinued. Children's funds and retirement funds sat in this group. They stop accepting fresh subscriptions and are to be merged into other schemes. The new Life Cycle Fund category takes over the goal-linked slot.
• Minimum equity allocation was raised for several style categories, including dividend yield, value, contra and focused funds, which move to a minimum of 80 percent of total assets in equity.
• A portfolio overlap limit was introduced. A sectoral or thematic scheme's portfolio may not overlap more than 50 percent with other equity schemes of the same fund house. Overlap is computed quarterly, as the average of daily overlap values, and disclosed monthly on the AMC's website.
• Scheme names must match the category, removing the older habit of names that described a strategy the mandate did not require.

Existing schemes were given six months to align, and sectoral or thematic schemes up to three years to meet the overlap limit, with mergers for those that cannot.

How to read a scheme against its category

The category tells you the floor, not the portfolio. A large cap fund must hold at least the mandated share in large cap stocks, and what it does with the rest is a choice you can only see in the monthly portfolio disclosure. So the category is where to start, and the filings are where to finish:

1. Read the category and its minimum in the scheme information document.
2. Pull the month-end portfolio, which AMCs publish within 10 days of month end.
3. Compare against the mandate, and against a second scheme if you want to see duplication. The method is in how to check mutual fund portfolio overlap.

Two further points on limits. Categorisation constrains what a scheme holds, not what it charges: that sits in the total expense ratio. And it says nothing about liquidity risk, which is disclosed separately through mutual fund stress testing.

What mutual fund scheme categorisation does not tell you

A category is a boundary, dated to the circular that drew it. It does not rank schemes, does not imply one category suits you, and does not stay fixed: the framework has now been rewritten twice in under a decade, and a scheme's category or name may change during a transition window. Read the current scheme information document rather than an older factsheet, and check whether the scheme you are looking at is mid-transition. Flock reports public filings with every claim sourced and dated. What any of it means for your money is your call to make.