Equity Mutual Funds

A mutual fund pools money from many people, and a professional manager invests it under SEBI rules. Each fund sits in a category, SEBI's label for what it may hold. Equity mutual funds put most of your money into equity, meaning shares in companies, sorted by size, strategy, or sector or theme, plus one tax-saving group called ELSS. A manager may hold the rest in money-market instruments, gold and silver, or InvITs (infrastructure trusts), within set limits.

SEBI names 13 equity groups; Koshex also has 13 pages, but the lists differ. SEBI's 13: multi cap, large cap, large and mid cap, mid cap, small cap, flexi cap, dividend yield, value, contra, focused, sectoral, thematic and ELSS. Koshex merges value with contra, and sectoral with thematic, then adds index funds and international funds, which SEBI files under 'Other', not equity. A fund house may run both a value fund and a contra fund if their portfolios (the holdings each fund owns) overlap by no more than 50%.

A fund house may run only one fund per category. The exceptions are index funds tracking different indices, funds of funds (investing in other funds) with different underlying funds, and sectoral or thematic funds covering different sectors or themes.

Most equity categories are set by company size. Every six months, AMFI ranks every listed company by average market capitalisation (share price times number of shares). On the list for the half year to June 2026, GAIL ranked 100th; Bosch at 101 opened mid cap; Navin Fluorine International at 251 opened small cap.

• Large cap funds: at least 80% in the 100 largest companies.
• Mid cap funds: at least 65% in companies ranked 101 to 250.
• Small cap funds: at least 65% in companies ranked 251 onwards.
• Large and mid cap funds: at least 35% each in large and mid caps.
• Multi cap funds: at least 75% in equity, no size band below 25%.
• Flexi cap funds: at least 65% in equity, any size mix the manager chooses.

Focused funds hold at most 30 stocks. Value and contra funds each keep at least 80% in equity: one buys cheap stocks, the other buys against the crowd. Dividend yield funds invest mainly in shares that pay dividends. Sectoral and thematic funds put at least 80% into a sector, like banking, or a theme, like consumption. ELSS funds keep at least 80% in equity, locking each amount invested for three years. Under the old tax regime only, it counts toward a ₹1,50,000 deduction in section 123 (the old Section 80C) of the Income-tax Act, 2025. Index funds copy an index (a list of companies picked by fixed rules), holding at least 95% in its shares, with no manager stock-picking. International funds buy shares listed outside India, through an overseas fund of funds or index fund.

Equity funds carry the highest risk rating. On 29 September 2026, almost every listed equity fund read Very High on the riskometer, a six-level label from Low to Very High, set by SEBI's formula. The formula scores market cap, volatility (price swings) and impact cost (cost of trading in bulk); a fully invested equity portfolio cannot score below High.

Between 8 January and 27 October 2008, the NIFTY 50 (an index of 50 companies picked by fixed rules) lost 59.9% of its value; in 2020 it lost 38.4% between 14 January and 23 March. The NIFTY Smallcap 250 fell 73.2% between 2 January and 2 December 2008. By 9 March 2009 it was 76.0% below its 2 January 2008 level.

The riskometer isn't fixed at launch. It's recalculated every month from the fund's actual holdings and published within ten days of month-end, so its level can move as holdings change, without changing the fund's fundamental nature.

Under the Income-tax Act, 2025, a fund gets equity tax treatment only if at least 65% of its money sits in Indian listed shares. International funds, and some funds of funds, fall short and are taxed differently. Within a qualifying fund, your holding period (how long you held your units, a fund's small pieces) decides the rate. Sell within 12 months and the gain is short-term, taxed at 20%; hold longer, it's long-term, taxed at 12.5%, only on gains above ₹1,25,000 a tax year, counted once across all your equity funds, not per fund.

Example, tax year 2026-27: sell large cap units held two years for a ₹1,00,000 gain, and mid cap units held three years for a ₹90,000 gain. Total long-term gain ₹1,90,000; the first ₹1,25,000 is tax-free, so ₹65,000 is taxed at 12.5%, or ₹8,125. Add 4% cess (an extra tax) of ₹325, for a total of ₹8,450. This uses today's rates; it isn't a forecast.

For international funds, an unlisted unit (one not traded on a stock exchange) held 24 months or less is short-term, taxed at your slab rate (the rate set by income). Past 24 months it is long-term at 12.5%, with no ₹1,25,000 exemption (only for equity-oriented funds, which pass that 65% test). IDCW payouts (money paid out, lowering the fund's NAV, its unit price) on any equity fund add to your income, taxed at slab rate. TDS (tax deducted at source, before it reaches you) of 10% applies to IDCW above ₹10,000; a resident's redemption gains carry no TDS.

Koshex suggests matching the category to how far away your goal is: the smaller, more concentrated or more overseas it is, the longer the horizon we suggest. Five years or more suits large cap, flexi cap, focused and dividend yield funds. Large-and-mid-cap and value-and-contra funds sit a notch higher, at five to seven years. For mid cap, small cap, multi cap, sectoral-and-thematic and international funds, we suggest seven years or more. Mid and small cap funds trade thinly enough for AMFI's monthly stress test, run since February 2024, tracking days to sell 50% and 25% of the portfolio.

This isn't a formula for how much of each to hold. What decides the right mix for you: your own horizon, what else you hold, and how large a fall you can sit through without selling. Koshex, a distributor (AMFI-registered, ARN-154632), can help you choose a category that suits your goal and timeline, then review your holdings over time. ELSS carries a three-year lock-in on top, counted separately for every SIP instalment (a fixed monthly amount) from its own purchase date.

Either works. A lumpsum means investing the whole amount at once, unlike a SIP's regular instalments. If a ₹5,000 instalment buys 50 units at ₹100 each, and the next buys 100 units at ₹50, your average cost sits between the two.

For tax, each SIP instalment has its own holding period. In an equity-oriented fund, units bought on 5 April 2026 turn long-term after 5 April 2027, and the 5 May 2026 instalment after 5 May 2027. In an ELSS fund the same rule locks each instalment for three years from its own date of purchase, leaving a five-year SIP's recent instalments locked well after it ends. A lumpsum has no such staggering, suiting money already in hand and a horizon you're sure of.

Read the category rule and the riskometer before the returns. Koshex lists 822 equity funds in the regular plan (bought via a distributor), growth option (gains stay invested), with combined assets (AUM, the current value of the money managed) of ₹40,96,546 Cr. 512 have three years' history, ranked on that basis.

Averaged over the funds with a 3-year record, returns are 2.3% over one year, 5.8% a year (CAGR, the average yearly growth rate) over three, and 11.0% a year over five. These are averages of what has happened, not a promise of what comes next. Set them against your own horizon, and check a scheme's own page for its exact numbers.