Types of Mutual Funds in India (2026): Complete Beginner’s Guide

With so many investment options available, understanding the different types of mutual funds is crucial for beginners. Mutual funds come in many different varieties. Each type is designed for a different investment purpose. Some types of mutual funds primarily invest in stocks. Others invest in bonds, money-market instruments, or a combination of asset classes.

If you are entirely new to this space, you might first want to read our primer on what mutual fund investment is. For a beginner, terms such as Large Cap Fund, Flexi Cap Fund, Liquid Fund, Hybrid Fund, Index Fund, ETF, and Life Cycle Fund get confusing fast.

The good news is you don't need to understand every single scheme before you start investing. The first step is to understand how the various types of mutual funds are classified and what each type actually does.

In this guide, we explain the different types of mutual funds in India for 2026. We are using the latest mutual fund categorisation framework issued by the Securities and Exchange Board of India (SEBI). We will look at the major scheme categories, their investment approach, risk characteristics, and the types of investors who might want them.

(Important 2026 update: SEBI revised the categorisation and rationalisation framework for mutual fund schemes on February 26, 2026. Under the revised rules, mutual fund schemes are broadly classified into Equity Schemes, Debt Schemes, Hybrid Schemes, Life Cycle Funds, and Other Schemes. The earlier Solution-Oriented Schemes category is gone.)

Understanding these types of mutual funds helps you make better decisions. Once you know the basics, you won't just choose a fund simply because it delivered high returns last year. You'll be well on your way to knowing how to select the best mutual funds in India for your portfolio.

1. What Are the Different Types of Mutual Funds?

At a broad level, the latest SEBI framework groups these types of mutual funds into five major categories:

These are broad groups, not just five individual types of mutual funds. Each group contains several scheme categories with different investment strategies. For example, Equity Schemes include categories such as Large Cap, Mid Cap, Small Cap, Multi Cap, Flexi Cap, Value, Contra, Focused, Sectoral, Thematic and ELSS.

So, when someone asks, “How many types of mutual funds are there?”, there isn't one simple number. Mutual funds are classified at different levels. It depends on whether we are looking at SEBI's broad scheme groups, individual scheme categories, investment strategy, structure, or the way the fund is managed.

In the sections below, we break down these types of mutual funds step by step. Even a first-time investor will understand them.

2. Mutual Fund Classification in India: What Changed in 2026?

If you read older articles about the types of mutual funds, the classification probably looks different from what you see today. SEBI revised the categorisation and rationalisation framework for mutual fund schemes in February 2026. The revised framework replaced the earlier classification structure to standardise the categories and characteristics of schemes.

Earlier Mutual Fund Classification

Under the old rules, the broad types of mutual funds were:

• Equity Schemes
• Debt Schemes
• Hybrid Schemes
• Solution-Oriented Schemes
• Other Schemes

This is why many older websites still list Solution-Oriented Schemes as one of the main types of mutual funds. But this is no longer correct for a 2026-focused guide.

New SEBI Classification of Mutual Funds in 2026

Under the revised rules, the broad types of mutual funds are classified into five groups:

• Equity Schemes
• Debt Schemes
• Hybrid Schemes
• Life Cycle Funds
• Other Schemes

SEBI defines Equity Schemes as schemes predominantly investing in equity and equity-related instruments. Debt Schemes invest mostly in debt and debt-related instruments. Hybrid Schemes invest in a mix of permitted asset classes.

The Other Schemes group includes Fund of Fund Schemes and Passive Schemes (such as Index Funds and ETFs). Life Cycle Funds are now a separate broad category under the revised rules.

What Happened to Solution-Oriented Mutual Funds?

One of the most important changes regarding the types of mutual funds is the discontinuation of the Solution-Oriented Schemes category. SEBI's February 2026 circular states that this category is gone immediately. Existing schemes in this category must stop new subscriptions and merge with another suitable scheme with a similar asset allocation and risk profile. Older articles listing Retirement Funds and Children's Funds under a separate Solution-Oriented category are outdated.

What Are Life Cycle Funds?

Life Cycle Funds are now a separate broad category of mutual funds. The basic idea is that these types of mutual funds are built around a predetermined target date and investment glide path. The asset allocation changes based on the fund's predefined strategy as the target date approaches.

For example, a Life Cycle Fund might have a target date several decades away. Its investment strategy follows a predefined allocation path over that period. This is different from traditional equity or debt types of mutual funds.

Why Did SEBI Revise the Classification?

SEBI wants to make it easier for investors to distinguish between similar types of mutual funds. The framework standardises the scheme categories, characteristics, and descriptions so that similar schemes now have clearer, more consistent labels across all Association of Mutual Funds in India (AMFI) registered asset management companies. The revised rules also introduce portfolio-overlap requirements for certain equity categories, like sectoral and thematic schemes.

Does This Mean There Are Only Five Types of Mutual Funds?

No. This is an important distinction. The five groups are broad categories, not five individual types of mutual funds.

For example, Equity Schemes contain multiple individual types of mutual funds, including:

• Multi Cap Fund
• Large Cap Fund
• Large & Mid Cap Fund
• Mid Cap Fund
• Small Cap Fund
• Flexi Cap Fund
• Dividend Yield Fund
• Value Fund
• Contra Fund
• Focused Fund
• Sectoral Fund
• Thematic Fund
• ELSS – Tax Saver Fund

Similarly, Debt and Hybrid groups contain several individual types of mutual funds.

When you search for “types of mutual funds”, you might see different numbers on different websites because they are referring to different levels of classification.

Simple way to remember it:

Broad category → Scheme category → Individual mutual fund scheme

(Example: Equity → Flexi Cap → A particular Flexi Cap mutual fund scheme)

Understanding this difference makes the rest of the types of mutual funds much easier to follow.

3. Types of Mutual Funds: Equity Mutual Funds

These types of mutual funds are generally considered more suitable for investors who can handle market fluctuations and have a long investment horizon. But equity mutual funds do not guarantee returns. Even diversified equity funds experience substantial declines during market downturns.

Under the revised 2026 SEBI framework, there are 13 equity scheme categories.

Overview of Equity Types of Mutual Funds

Equity fund type	What it means	Min. equity allocation*	General risk
Multi Cap Fund	Invests across large-, mid- and small-cap companies	75%	High
Large Cap Fund	Primarily invests in large-cap companies	80%	High
Large & Mid Cap Fund	Invests in both large-cap and mid-cap companies	70%	High
Mid Cap Fund	Primarily invests in mid-cap companies	65%	High
Small Cap Fund	Primarily invests in small-cap companies	65%	Very High
Flexi Cap Fund	Can invest across large-, mid- and small-cap companies	65%	High
Dividend Yield Fund	Predominantly invests in dividend-yielding stocks	80%	High
Value Fund	Follows a value-investing strategy	80%	High
Contra Fund	Follows a contrarian investment strategy	80%	High
Focused Fund	Concentrates on a maximum of 30 stocks	80%	High
Sectoral Fund	Concentrates on a particular sector	80%	Very High
Thematic Fund	Concentrates on a particular investment theme	80%	Very High
ELSS – Tax Saver Fund	Equity-oriented scheme with tax-saving features	80%	High

*The percentages above refer to the minimum equity/equity-related investment requirements specified in SEBI's revised scheme characteristics. Risk labels are broad educational descriptions.

Let's understand these types of mutual funds in simple terms.

1. Multi Cap Fund

A Multi Cap Fund invests across large-cap, mid-cap and small-cap companies. It must invest at least 75% of total assets in equity, needing at least 25% each in large-cap, mid-cap and small-cap companies. Instead of concentrating only on India's largest companies, it has mandatory exposure across all three segments.

2. Large Cap Fund

A Large Cap Fund predominantly invests in large-cap companies. The revised framework requires at least 80% of total assets to be invested in large-cap companies.

3. Large & Mid Cap Fund

This category combines large-cap and mid-cap companies. The scheme must invest at least 35% in large-cap and 35% in mid-cap companies. This gives investors exposure to both established large companies and mid-sized companies.

4. Mid Cap Fund

A Mid Cap Fund predominantly invests in mid-cap companies (at least 65% of total assets). Mid-cap stocks offer growth opportunities but often experience greater price fluctuations than large-cap stocks.

5. Small Cap Fund

A Small Cap Fund predominantly invests in small-cap companies (at least 65%). Small-cap companies experience significant price movements. Among the types of mutual funds, this category is not for beginners chasing past returns due to its very high risk.

6. Flexi Cap Fund

A Flexi Cap Fund has the flexibility to invest across large-cap, mid-cap and small-cap companies. It must invest at least 65% of total assets in equity. Unlike a Multi Cap Fund, it does not have the minimum 25% allocation requirement for each market-cap segment.

7. Dividend Yield Fund

A Dividend Yield Fund predominantly invests in stocks with relatively higher dividend yields (at least 80% allocation). This does not mean investors are guaranteed to receive regular income.

8. Value Fund

A Value Fund follows a value-investing strategy. The fund manager looks for companies they believe are undervalued relative to their perceived underlying value.

9. Contra Fund

A Contra Fund follows a contrarian investment strategy. The fund manager looks for investment opportunities that differ from prevailing market sentiment.

10. Focused Fund

A Focused Fund concentrates its portfolio in a limited number of stocks (maximum of 30 stocks). Because the portfolio is concentrated, individual holdings have a greater effect on the overall scheme.

11. Sectoral Fund

A Sectoral Fund concentrates its investments in a particular sector (e.g., banking or IT). Because the fund is concentrated in one sector, its performance depends entirely on what happens in that sector.

12. Thematic Fund

A Thematic Fund invests around a particular investment theme. A theme spans two or more sectors, making thematic funds broader than a single-sector strategy, though they still carry significant risk.

13. ELSS – Tax Saver Fund

ELSS (Equity Linked Savings Scheme) is one of the most popular types of mutual funds because it offers tax-saving features under applicable Income Tax Department of India rules. Do not pick an ELSS solely for the tax benefit; understand the equity-market risk and 3-year lock-in period first.

Beginner takeaway: Equity types of mutual funds are not one single type of investment. The right category depends on your goal, time horizon, and ability to handle market volatility. Important: Large Cap, Mid Cap and Small Cap are not three separate broad SEBI groups; they are sub-categories of Equity Schemes.

4. Types of Mutual Funds: Debt Mutual Funds

Debt mutual funds invest primarily in debt and money-market instruments rather than company shares. These instruments include government securities, corporate bonds, commercial paper, certificates of deposit, and other fixed-income securities.

The main risks in these types of mutual funds aren't driven by stock prices. You need to pay attention to interest-rate risk, credit risk, and liquidity risk. Many people think debt mutual funds are basically fixed deposits. They are not. Their NAV can drop.

Overview of Debt Types of Mutual Funds

Here are the major debt types of mutual funds you will see in India:

Let's understand the major categories in simple language.

1. Overnight, Liquid, and Ultra Short Term Funds

These types of mutual funds invest in very short-term debt and money market instruments. Overnight Funds invest in overnight securities with a maturity of one day. Liquid Funds invest in debt and money market securities with maturities of up to 91 days. Ultra Short Term Funds maintain a portfolio Macaulay duration of 3–6 months.

Because these funds generally have shorter durations, their sensitivity to changes in interest rates can be relatively lower than that of longer-duration debt funds. However, they are not risk-free bank accounts and remain subject to risks such as credit and liquidity risk.

2. Ultra Short to Short Term, Short Term, Medium Term, Medium to Long Term, and Long Term Funds

These debt fund categories are primarily differentiated by the Macaulay duration of their portfolios.

 Ultra Short to Short Term Funds maintain a portfolio Macaulay duration of 6–12 months. Short Term Funds have a duration of 1–3 years. Medium Term Funds have a duration of 3–4 years. Medium to Long Term Funds have a duration of 4–7 years, while Long Term Funds have a duration above 7 years. 

 In general, the longer the duration of a debt portfolio, the greater its sensitivity to changes in interest rates.

3. Dynamic Term Fund

A Dynamic Term Fund gives the fund manager flexibility to manage the portfolio across different durations based on the investment strategy and prevailing market conditions.

Because the portfolio duration can change, investors should understand that its interest-rate sensitivity may also change over time.

4. Corporate Bond and Credit Risk Funds

Corporate Bond Funds invest predominantly in higher-rated corporate bonds, with the revised framework requiring at least 80% of total assets in corporate bonds rated AA+ and above.

Credit Risk Funds take relatively greater credit risk by investing at least 65% of their total assets in corporate bonds rated AA and below, excluding AA+.

Therefore, investors should pay close attention to the credit quality of the securities held by these funds.

5. Banking and PSU Debt Fund

Banking and PSU Debt Funds primarily invest in debt instruments issued by banks, public-sector undertakings, public financial institutions and permitted municipal bonds.

The key risks to understand include credit risk and interest-rate risk.

6. Gilt Funds

Gilt Funds primarily invest in government securities. Because these securities are issued by the government, investors sometimes assume that gilt funds cannot lose money.

That is not correct.

Gilt funds can experience significant fluctuations in their NAV because of interest-rate movements. When interest rates change, the market value of existing government securities can change, particularly when the portfolio has longer-duration securities.

7. 10-year Constant Maturity Gilt Fund

This category focuses on government securities and maintains a portfolio Macaulay duration of 10 years.

Because of this relatively long duration, investors should be particularly aware of interest-rate sensitivity.

8. Floating Interest Rates Fund

Floating Interest Rates Funds invest at least 65% of their total assets in floating-rate instruments.

Their interest-rate behaviour can differ from fixed-rate debt investments, but they are still subject to credit and other market-related risks.

9. Sectoral Fund

The revised 2026 framework also includes Sectoral Funds within the Debt Scheme category.

These funds concentrate at least 80% of their total assets in debt and debt-related instruments of a specified permitted sector.

Because of this concentration, investors need to consider sector-specific risk in addition to credit and interest-rate risks.

Are Debt Mutual Funds Safe?

There is no single answer.

Different types of mutual funds within the Debt Scheme category can have different combinations of interest-rate risk, credit risk and liquidity risk.

Instead of simply asking, “Are debt funds safe?”, a better question is:

“What risks does this specific debt fund take, and are those risks appropriate for my investment timeline and financial goal?”

Understanding the fund’s category, portfolio duration, credit quality and risk profile can help investors make a more informed decision.

5. Types of Mutual Funds: Hybrid Mutual Funds

But hybrid types of mutual funds are not automatically low-risk. The risk depends entirely on its asset allocation. Under the revised 2026 SEBI framework, there are six broad hybrid scheme categories.

Overview of Hybrid Types of Mutual Funds

1. Conservative, Balanced, and Aggressive Hybrid Funds

These types of mutual funds are defined by their fixed equity-to-debt ratios. Conservative hybrids lean heavily on debt (75-90%). Balanced hybrids sit in the middle (40-60% equity). Aggressive hybrids lean heavily on equity (65-80%).

2. Dynamic Asset Allocation Fund (Balanced Advantage Fund)

These types of mutual funds change their allocation between equity and debt dynamically based on market models, rather than sticking to a fixed mix.

3. Multi-Asset Allocation Fund

This fund invests across multiple asset classes (usually equity, debt, and gold/commodities), requiring at least 10% in at least three asset classes.

4. Arbitrage Fund

An Arbitrage Fund tries to benefit from price differences for the same securities in different market segments (cash vs. derivatives markets).

Beginner takeaway: Do not pick hybrid types of mutual funds just because they have the word “balanced” or “conservative” in the name. Always check the actual asset allocation.

6. Types of Mutual Funds: Life Cycle Funds

What Is a Life Cycle Fund?

A Life Cycle Fund is designed around a predefined target date and an investment glide path. It follows a predetermined asset-allocation path that changes automatically as you get closer to the target date.

Instead of you manually figuring out when to move money from equity to debt as you get older, these types of mutual funds handle it based on their stated glide path.

How Do These Types of Mutual Funds Work?

Think about a long-term goal with a specific target year (e.g., Target Date 2055).

• Earlier years → Greater exposure to growth-oriented assets (like equity).
• Target date gets closer → Allocation becomes more conservative (shifts to debt).

These look similar to Hybrid Funds because both invest across asset classes. The distinction is that a hybrid fund is defined by its static asset mix, whereas a Life Cycle Fund is defined by a moving target date and glide path. Note: They are still market-linked and carry risk.

7. Other Types of Mutual Funds

The fifth broad group in the 2026 framework is "Other Schemes". This group includes types of mutual funds defined by how they track an underlying asset.

1. Index Funds

An Index Fund is a passive mutual fund that tracks a particular market index. Instead of a fund manager actively picking stocks, the scheme mirrors the composition of its chosen index. The goal is to track the index, not beat it.

2. Exchange Traded Funds (ETFs)

An Exchange Traded Fund (ETF) trades its units on a stock exchange like the National Stock Exchange (NSE). Unlike traditional types of mutual funds, you buy and sell ETF units on an exchange during market hours at market prices, usually requiring a demat account.

3. Fund of Funds (FoF)

A Fund of Funds (FoF) invests in other mutual fund schemes. It does not buy individual stocks or bonds directly. It creates an extra layer between you and the underlying investments.

8. Types of Mutual Funds Based on How They Are Managed

You can also classify types of mutual funds by how the manager runs the portfolio:

• Active Mutual Funds: A manager or team makes direct investment decisions, deciding which securities to buy or sell to beat a benchmark.

• Passive Mutual Funds: The fund tries to strictly track a specific index (like Index Funds and ETFs). The manager is not trying to find the "best" stocks.

Active/Passive describes the management style. It is distinct from the SEBI scheme classifications.

9. Types of Mutual Funds Based on Fund Structure

Mutual funds are also classified by how you enter and exit the scheme:

• Open-Ended Funds: Lets you buy and redeem units on an ongoing basis at the current NAV. This is the most common structure for beginners.

• Close-Ended Funds: Has a fixed maturity period. You buy during the initial offer, and then units trade on a stock exchange. You cannot freely redeem them directly with the fund until maturity.

• Interval Funds: Combines traits of both. You can only buy or redeem units during specified, predefined intervals.

10. Types of Mutual Funds Based on Investment Objective

Sometimes, investors categorize types of mutual funds by what they are trying to achieve (though these are not official SEBI categories):

1. Capital Appreciation: Geared for long-term growth (e.g., Equity Funds).
2. Income Generation: Geared for predictable cash flow (e.g., Corporate Bond Funds).
3. Liquidity: Geared for short-term cash parking (e.g., Liquid Funds).
4. Tax-Saving: Geared for Section 80C deductions (e.g., ELSS).
5. Goal-Based: Geared for specific timelines (e.g., Life Cycle Funds).

11. Types of Mutual Funds Based on Risk

Finally, you can look at types of mutual funds based on risk profiles:

• Low-Risk: Lower price volatility, fits short-term needs (Overnight, Liquid).
• Moderate-Risk: Balances growth and stability (Conservative/Balanced Hybrids).
• High-Risk: Heavy exposure to volatile assets (Small Cap, Sectoral, Thematic).

(Note: High risk does not guarantee high returns; it just means a greater potential for both massive gains and massive losses.)

12. Which of These Types of Mutual Funds Is Best for You?

There is no single "best" mutual fund. It depends entirely on your goal, horizon, and risk tolerance.

If you are a beginner, do not ask, “Which mutual fund gives the highest return?” Ask, “Which of these types of mutual funds matches my timeline and risk tolerance?”

Is SIP a Type of Mutual Fund?

No. A common beginner confusion is the difference between SIP and mutual funds. SIP (Systematic Investment Plan) is simply a method of investing where you put in a fixed amount regularly. You can use a SIP to buy any of the types of mutual funds mentioned above. To learn more, read our complete guide on what a SIP is and how to invest.

Direct vs Regular Plans / Growth vs IDCW Options

When selecting among the types of mutual funds, you will also see these terms:

• Direct Plan: You buy straight from the fund. Lower expense ratio.
• Regular Plan: You buy through a distributor. Higher expense ratio (includes commission).
• Growth Option: Returns stay reinvested in the fund, raising the NAV over time.
• IDCW Option: The fund pays out money when declared. The NAV drops by the amount paid out. IDCW is not guaranteed income.

Checklist: How to Choose the Right Types of Mutual Funds

1. What is my financial goal?
2. When will I need this money?
3. How much market risk can I handle?
4. Which broad category matches my goal (Equity, Debt, Hybrid, Life Cycle)?
5. Do I want active management or passive investing?
6. Which plan should I choose (Direct/Regular)?
7. Which option do I need (Growth/IDCW)?
8. How will I invest (SIP/Lump Sum)?
9. Have I checked the scheme details (Riskometer, expenses, portfolio)?

Key Takeaways

• Equity Schemes are for long-term growth.
• Debt Schemes are for short-term and medium-term stability.
• Life Cycle Funds follow a predetermined path toward a target date.
• SIP is a method of investing, not a mutual fund.
• Rule of thumb: Goal → Time Horizon → Risk Tolerance → Fund Category → Individual Scheme.

 ⚠️ Disclaimer: Mutual fund investments are subject to market risks, read all scheme related documents carefully. Do not rush into investing. Identify your goal, timeline, and risk tolerance first. Then compare specific schemes. Never invest based solely on past returns.