What are the different types of mutual fund categories, their key features, and benefits?

As per SEBI’s Categorisation and Rationalisation of Mutual Fund Schemes circular, dated February 26, 2026, mutual fund schemes are broadly classified into four categories: 

1. Equity (13 schemes)

2. Debt (17 schemes)

3. Hybrid (7 schemes)

4. Life Cycle Funds (schemes following the “Glide Path” strategy), and 

5. Other Schemes (covers index funds, ETFs, and FoFs). 

The schemes within these categories differ in terms of where they invest, asset allocation, investment objective, level of market risk, return potential, liquidity, investment horizon, and the type of investors they may suit.

On February 26, 2026, SEBI introduced the circular of  Categorisation and Rationalisation of Mutual Fund Schemes (this circular was issued as an update to the earlier circular pertaining to October 2017). The purpose was to bring uniformity so that investors could clearly understand what each investment option means.

Post-release of the circular, mutual fund schemes are now grouped into five main categories:

• Equity schemes

• Debt schemes

• Hybrid schemes

• Life cycle funds

• Other schemes, such as ETFs, Index Funds, and FOFs

If you are looking to invest in different categories of mutual fund schemes and gain knowledge, this article talks about the various types of mutual fund schemes as rationalised by SEBI. 
 

These are mutual fund schemes that invest mainly in Equity & Equity related instruments of companies. Its main goal could be to grow wealth over the long term. Some examples of equity fund types are as follows:

• Large-cap funds: Invest in the top 100 companies in terms of full market capitalisation.

• Mid-cap funds: Invest in companies ranked 101st to 250th.

• Small-cap funds: Invest in companies ranked 251st and below.

These funds can be suitable for investors who have a very high risk appetite and can stay invested for several years (long-term). Now, let’s have a look at a detailed classification of equity fund types:
 

SEBI-Defined Categories of Equity Mutual Fund schemes

*Equity and Equity related instruments
 

A debt mutual fund scheme (also called an income fund) invests mainly in bonds and other fixed-income securities. Generally, this includes:

• Government securities (G-secs)
• Treasury bills (T-bills)
• Debentures
• Certificates of deposit (CDs)
• Corporate bonds

The aim of debt funds is usually income generation + giving importance to the amount invested, rather than aggressive growth. Now, let’s check out some debt fund types. 

SEBI-Defined Categories of Debt Mutual Fund schemes

For those unaware, Macaulay Duration is the weighted average time (in years) an investor will take to recover the cost of a bond or debt fund through the cash flows (interest + principal) it pays.

Be aware that it is not just the maturity of the bond. Instead, it factors in both coupon payments (interest) and the final repayment of principal.

Now that you have understood equity and debt funds, there is another type of mutual fund scheme that combines both the features. Hybrid mutual fund schemes invest in a mix of equity and debt. Some schemes also include other assets like gold or international funds.

The purpose of these funds is to seek balance between potential growth (from equities) with relative stability (from debt). SEBI has divided hybrid mutual fund schemes into seven sub-categories. Let’s have a look:

SEBI-Defined Hybrid Fund Categories

*Equity and Equity related instruments

Life Cycle Funds are mutual fund schemes that follow a “glide path” strategy, where the allocation across asset classes changes over the investment period. These funds may invest across equity, debt, InvITs, ETCDs, and Gold and Silver ETFs. 

As per SEBI, the asset allocation can be adjusted over time (according to the fund’s defined life-cycle strategy) to align the portfolio with different stages of the investment horizon.

Apart from equity, debt, hybrid funds, and life cycle funds, SEBI also allows some special categories of mutual fund schemes. These schemes follow unique investment structures (say tracking an index or domestic gold prices).

Let’s see how SEBI has categorised them.

SEBI has divided mutual fund schemes into multiple categories, such as equity, debt, hybrid, life cycle funds, and other schemes (like ETFs, index funds, and fund of funds). 

These broad categories are further broken down into sub-categories based on these factors:

• Company size

• Security/ instrument type

• Allocation mix

• Investment style

Such classification of different categories of mutual fund schemes is made to give clarity to investors. With this knowledge, they can choose the right schemes based on their risk appetite and financial goals.

For more information, you can visit www.tatamutualfund.com/deshkarenivesh. The Investor Service Centre of Tata Asset Management Pvt. Ltd. is located at Mulla House, Ground Floor, 51, M.G. Road, Near Flora Fountain, Mumbai – 400 001, Maharashtra. The office hours are Monday to Friday, 9:00 AM to 5:30 PM. For assistance, you can also call (022) 6282 7777 from Monday to Saturday, 9:00 AM to 5:30 PM, or email service@tataamc.com.

1. What are the different types of mutual fund schemes in 2026?

As per SEBI regulations, mutual fund schemes are broadly classified into four categories:

• Equity (13 options)
• Debt (17 options)
• Hybrid (7 options)
• Life Cycle Funds (these are schemes that follow the “Glide Path” strategy), and 
• Other Schemes [index funds, ETFs, and FoFs (both domestic and overseas) are covered in this segment].  

These categories include different schemes based on their investment strategy and underlying assets. Each scheme has a defined investment objective and risk profile (depicted via Scheme and Benchmark riskometers).

2. What is a “glide path” strategy in life cycle funds?

A glide path strategy is an investment approach in which the allocation across asset classes changes gradually over the investment period. 

In a Life Cycle Fund, the portfolio may follow a predefined path that adjusts exposure to equity, debt, and other assets as the investor moves through different stages of the investment horizon.

3. What is an Arbitrage Fund?

An Arbitrage Fund is a mutual fund scheme that follows an arbitrage strategy by seeking to benefit from price differences of the same or related securities in different markets. The scheme invests at least 65% of its total assets in equity and equity-related instruments. 

For defensive considerations, the scheme’s asset allocation must be specified in its Scheme Information Document (SID). Any exposure to debt instruments is restricted to CDs, government securities with a maturity of upto one year, mutual fund units of liquid, money market or schemes having Macaulay duration less than 1 year for meeting liquidity and margin requirements.. Also, investments in InVits (Infrastructure Investment Trusts) are not permitted.

4. What is a Sectoral Debt Fund?

A Sectoral Debt Fund is a mutual fund scheme that invests at least 80% of its total assets in debt and debt-related instruments of a specified sector, across different maturities. The corporate bonds held by the scheme are restricted to those with a credit rating of AA+ or higher. 

As per SEBI, some permitted sectors are Financial Services, Energy, Infrastructure, Housing, and Real Estate.

An Investor Education and Awareness Initiative by Tata Mutual Fund. 

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