Investor Corner/The asset classes/Mutual Fund Categories
2.4.1 Equity Fund Categories
Equity fund categories range from large cap to small cap, and from sectoral bets to broad multi cap strategies. Each category follows regulator-defined rules about where it can invest, making comparisons within a category more meaningful.
The size-based categories
Large cap, mid cap and small cap funds are defined by regulation according to which size segment of the market they must primarily invest in. Multi cap and flexi cap funds are given more freedom to move across these segments, with flexi cap funds having the widest discretion over how they allocate between large, mid and small companies.
The style-based categories
Value funds look for companies trading cheaply relative to fundamentals. Contra funds deliberately go against prevailing market sentiment. Dividend yield funds focus on companies with a strong history of dividend payouts. Focused funds concentrate their portfolio in a smaller number of high-conviction holdings rather than spreading across many.
Why the category label matters
A fund's category determines the rules it must follow and the benchmark it should reasonably be judged against. Comparing a small cap fund's returns directly to a large cap fund's returns, without accounting for the very different risk each category carries, is one of the more common mistakes investors make when evaluating fund performance.
How PriLytics helps. PriLytics sorts and filters your holdings by asset class, letting you see at a glance exactly how your equity exposure is spread across these categories. See holdings and returns.