SEBI scheme categorisation circular (October 2017)
The SEBI scheme categorisation and rationalisation circular (Circular SEBI/HO/IMD/DF3/CIR/P/2017/114 dated 6 October 2017) is the regulatory framework that standardised mutual fund scheme categories across all Indian Asset Management Companies (AMCs). The circular replaced the prior era of fund-house-specific category naming with a single industry-wide taxonomy of 36 standardised categories grouped under five broad classifications (equity, debt, hybrid, solution-oriented, and other). The circular was issued by SEBI under SEBI (Mutual Funds) Regulations 1996 and implemented during 2018 through scheme mergers and reclassifications.
Before October 2017, the same investor seeking a “large-cap fund” could find dozens of products from different AMCs that defined “large-cap” differently. Some AMCs used market-cap thresholds (top 100 by market cap), others used custom criteria (companies above Rs 10,000 crore market cap), still others used qualitative judgements. The October 2017 circular eliminated this definitional chaos by:
- Standardising 36 categories with precise allocation criteria.
- Mandating one scheme per category per AMC (with limited exceptions).
- Defining market-cap bands for equity-category classification: large-cap (top 100), mid-cap (101-250), small-cap (251 onwards).
- Specifying minimum allocations for each category (e.g., 80 per cent for large-cap, 65 per cent for ELSS, etc.).
- Requiring scheme merger or reclassification for AMCs holding multiple schemes in the same standardised category.
The circular was implemented through 2018, during which all 44 Indian AMCs reorganised their scheme line-ups. Some schemes were merged with peer schemes from the same AMC, others were reclassified to different standardised categories, and some were discontinued. By mid-2018 the Indian mutual fund industry had stabilised around the new categorisation framework.
This article covers the October 2017 circular end-to-end: the regulatory context that necessitated it, the 36 standardised categories with their allocation requirements, the market-cap definition framework, the implementation timeline through 2018, the subsequent amendments (particularly the September 2020 multi-cap reclassification), and the impact on the Indian mutual fund industry.
Pre-2017 categorisation chaos
AMC-specific definitions
Before the October 2017 circular, each AMC used its own scheme naming and categorisation logic. The same investor objective (e.g., “invest in India’s largest companies”) could be served by dozens of differently-named schemes from different AMCs:
- HDFC Top 100 Fund (HDFC’s large-cap analogue).
- ICICI Prudential Top 100 Fund.
- SBI Bluechip Fund.
- Axis Bluechip Fund.
- Aditya Birla Sun Life Frontline Equity Fund.
- DSP Top 100 Equity Fund.
- Franklin India Bluechip Fund.
Each had different allocation thresholds, different definitions of “top 100”, and different actual portfolios. Performance comparison across these “large-cap” schemes was difficult because the schemes were not strictly comparable.
Investor confusion and adviser arbitrage
The pre-2017 framework produced two systemic problems:
- Investor confusion: retail investors could not compare schemes meaningfully across AMCs.
- Adviser arbitrage: AMC sales teams marketed “best performing large-cap fund” comparisons that were not strictly fair because the schemes invested in different universes.
SEBI’s October 2017 circular addressed both problems by mandating a single industry-wide taxonomy.
The 36 standardised categories
Equity-oriented schemes (10 categories)
| Category | Allocation requirement |
|---|---|
| Large Cap Fund | Minimum 80 per cent in equity of top 100 companies by market cap |
| Mid Cap Fund | Minimum 65 per cent in equity of 101-250 companies by market cap |
| Small Cap Fund | Minimum 65 per cent in equity of 251+ companies by market cap |
| Large and Mid Cap Fund | Minimum 35 per cent each in large-cap and mid-cap equity |
| Multi Cap Fund | 25 per cent each in large/mid/small (post-September 2020 amendment) |
| Flexi Cap Fund | Minimum 65 per cent in equity (flexible across caps) |
| Dividend Yield Fund | Minimum 65 per cent in equity of dividend-yielding stocks |
| Value Fund / Contra Fund | Value or contrarian strategy (one or the other per AMC) |
| Focused Fund | Maximum 30 stocks |
| Sectoral / Thematic Fund | Minimum 80 per cent in specified sector or theme |
| ELSS | Equity Linked Savings Scheme with 3-year lock-in, Section 80C eligible |
The flexi-cap category was added in November 2020 as a successor to the original multi-cap definition (see the September 2020 multi-cap reclassification below).
Debt-oriented schemes (16 categories)
| Category | Allocation requirement |
|---|---|
| Overnight Fund | Securities with 1-day residual maturity |
| Liquid Fund | Securities with up to 91-day residual maturity |
| Ultra Short Duration Fund | Macaulay duration 3-6 months |
| Low Duration Fund | Macaulay duration 6-12 months |
| Money Market Fund | Money market instruments up to 1-year maturity |
| Short Duration Fund | Macaulay duration 1-3 years |
| Medium Duration Fund | Macaulay duration 3-4 years |
| Medium to Long Duration Fund | Macaulay duration 4-7 years |
| Long Duration Fund | Macaulay duration > 7 years |
| Dynamic Bond Fund | Flexible duration |
| Corporate Bond Fund | Minimum 80 per cent in AA+ and above corporate bonds |
| Credit Risk Fund | Minimum 65 per cent in AA and below bonds |
| Banking and PSU Fund | Minimum 80 per cent in PSU and bank bonds |
| Gilt Fund | Minimum 80 per cent in government securities |
| Gilt Fund (10-year constant duration) | Macaulay duration around 10 years |
| Floater Fund | Minimum 65 per cent in floating-rate bonds |
Hybrid schemes (7 categories)
| Category | Allocation requirement |
|---|---|
| Conservative Hybrid Fund | 10-25 per cent equity, rest in debt |
| Balanced Hybrid Fund | 40-60 per cent each in equity and debt (no arbitrage) |
| Aggressive Hybrid Fund | 65-80 per cent equity, rest in debt |
| Dynamic Asset Allocation / Balanced Advantage Fund | Dynamic allocation based on signals |
| Multi Asset Allocation Fund | Minimum 3 asset classes, 10 per cent each |
| Arbitrage Fund | Minimum 65 per cent in cash-futures arbitrage |
| Equity Savings Fund | Equity, arbitrage, and debt combined |
Solution-oriented schemes (2 categories)
| Category | Notes |
|---|---|
| Retirement Fund | Minimum lock-in 5 years or till retirement age |
| Children’s Fund | Minimum lock-in 5 years or till child reaches majority |
Other schemes (3 categories)
| Category | Notes |
|---|---|
| Index Fund / ETF | Replicates a published benchmark |
| Fund of Funds | Invests in other funds (domestic or overseas) |
| Specialised Investment Fund | Niche structures |
The market-cap framework
Top 100 / 101-250 / 251+ definition
The October 2017 circular’s most influential definition is the market-cap band classification:
- Large cap: top 100 listed companies by full market capitalisation.
- Mid cap: companies ranked 101 to 250 by full market capitalisation.
- Small cap: companies ranked 251 onwards.
AMFI publishes the list of stocks in each band every six months (January and July) based on the average market cap of the preceding six months. The lists are binding for category compliance: a large-cap fund must hold at least 80 per cent of equity in stocks that AMFI has classified as large-cap at any given time.
Reclassification effects
When AMFI’s semi-annual list reclassifies a stock from one band to another (e.g., a former mid-cap stock now ranks in the top 100), all schemes holding that stock must adjust their allocation to remain within the category’s allocation requirements. The reclassifications produce twice-yearly portfolio churn across the industry.
Market-cap thresholds in practice
As of early 2026, the approximate market-cap thresholds:
- 100th stock (smallest large-cap): approximately Rs 70,000 crore.
- 250th stock (smallest mid-cap): approximately Rs 25,000 crore.
- 251st and below: small-cap.
The thresholds shift over time with market-level cap movements.
One scheme per category per AMC
The rule
The October 2017 circular’s most operationally consequential rule was the one-scheme-per-category-per-AMC requirement. Each AMC was allowed exactly one scheme in each standardised category (with limited exceptions for specific sub-categories).
The rule was designed to:
- Prevent AMC line-up complexity that obscured product comparison.
- Force AMCs to consolidate similar schemes.
- Simplify investor decision-making.
Implementation through 2018
AMCs had to:
- Classify each existing scheme to one of the 36 standardised categories.
- Merge schemes that fell into the same category at the same AMC (typically the larger scheme absorbed the smaller).
- Reclassify schemes to a different category if the AMC chose to retain them but had a duplicate in the original category.
- Discontinue schemes in some cases where merger and reclassification were not viable.
The reorganisation happened through 2018 with material scheme-merger activity. By mid-2018 the Indian mutual fund industry had stabilised around the new framework.
Investor protection during transition
To protect investors during the merger and reclassification process, SEBI required:
- Minimum 30-day notice to existing unitholders.
- Right to exit without exit load during the notice period.
- Disclosure of the impact on the merged scheme’s investment objective and risk profile.
Subsequent amendments
September 2020 multi-cap reclassification
The SEBI multi-cap reclassification circular of September 2020 made a significant amendment to the multi-cap category. Pre-September 2020, multi-cap funds had no specific allocation requirement (they were assumed to have flexible allocation across caps). The amendment required:
- Minimum 25 per cent in large-cap.
- Minimum 25 per cent in mid-cap.
- Minimum 25 per cent in small-cap.
- The remaining 25 per cent flexible.
The mandate forced multi-cap funds (which had typically been large-cap-tilted) to substantially increase their small-cap exposure, generating significant portfolio restructuring activity through late 2020 and 2021.
The amendment also introduced the new Flexi Cap Fund category (minimum 65 per cent in equity with flexible cap allocation) to preserve the flexibility option that the original multi-cap had provided. Many AMCs moved their existing multi-cap funds to the new flexi-cap category and launched fresh multi-cap funds compliant with the strict allocation requirement.
Other amendments
Subsequent amendments have refined specific aspects:
- Risk-O-Meter overlay (2020): mandating the AMFI Risk-O-Meter framework on every scheme.
- TER amendments (2018, 2024): revising the expense-ratio slab structure.
- Specialised fund categories (2022-2024): allowing new sub-categories under specific innovation conditions.
The core 36-category framework has remained largely intact since 2017.
Impact on the industry
Performance comparability
The categorisation framework’s most important contribution was performance comparability. Investors can now compare “large-cap” funds across AMCs knowing that the schemes are subject to the same allocation requirements. The Value Research, MorningStar India, and AMFI-aggregated performance leaderboards became more meaningful as a result.
AUM concentration
The categorisation also produced AUM concentration effects:
- The largest scheme in each category became disproportionately attractive (the “best-in-category” effect).
- AMC product strategy shifted from diversification (multiple sub-style schemes) to leadership (the single category-best scheme).
Scheme proliferation alternative routes
While the one-scheme-per-category rule limited proliferation within standardised categories, AMCs continued to launch:
- Multiple schemes within sectoral/thematic categories (each on a distinct theme).
- Fund of Funds with overseas or specific-strategy targets.
- Index funds and ETFs on different benchmarks.
- Closed-ended schemes with specific maturity profiles.
The proliferation in these less-restricted categories has been a feature of post-2017 industry dynamics.
Direct-plan comparison
Combined with the direct-plan vs regular-plan TER differential regime from January 2013, the categorisation framework enables retail investors to:
- Identify the standardised category appropriate for their investment objective.
- Select within that category based on TER, AMC track record, and direct-plan availability.
- Compare net-of-TER performance across same-category alternatives.
This three-step decision process is the post-2017 standard for retail mutual fund selection.
See also
- SEBI (Mutual Funds) Regulations 1996
- Mutual fund industry in India
- Mutual funds in India
- SEBI multi-cap reclassification (September 2020)
- Flexi Cap Fund in India
- Multi Cap Fund in India
- ELSS in India
- Aggressive Hybrid Fund
- Arbitrage Fund
- Liquid Mutual Fund in India
- Sectoral and thematic mutual funds
- Focused equity mutual fund
- Direct vs regular plan TER differential
- AMFI Risk-O-Meter
- SEBI
- Association of Mutual Funds in India (AMFI)
- Mutual fund TER in India
- Mutual fund taxation in India
External references
- SEBI circular on scheme categorisation and rationalisation (6 October 2017)
- SEBI Master Circular on Mutual Funds
- AMFI scheme classification list
- SEBI (Mutual Funds) Regulations 1996
References
- SEBI circular SEBI/HO/IMD/DF3/CIR/P/2017/114 dated 6 October 2017 on scheme categorisation and rationalisation.
- SEBI Master Circular on Mutual Funds dated 27 May 2024, sebi.gov.in.
- SEBI (Mutual Funds) Regulations 1996, sebi.gov.in.
- AMFI semi-annual market-cap classification lists, amfiindia.com.
- SEBI multi-cap reclassification circular dated 11 September 2020.
- SEBI circular dated 6 November 2020 introducing the Flexi Cap Fund category.
- AMFI industry data on scheme mergers and reclassifications during the 2018 implementation period.