Types Of Equity Mutual Funds In India: A Complete Guide
In July 2025, the net asset under management (AUM) of equity mutual funds reached INR 33.32 lakh crore, representing a 335.31% growth over the past five years1. This surge occurred despite market volatility, marking a growing affinity towards equity funds, especially through SIPs.
The various equity mutual fund types enable investors to gain equity exposure and diversify their limited investible funds across a range of equities and other assets. This enables wealth creation through higher potential returns (compared to debt and other similar funds), professional management, diversification, etc.
However, there are different types of mutual funds in India, categorised based on asset allocation style and other parameters, to meet unique investor needs. This blog explores the different categories in detail to establish the best equity funds.
Types Of Equity Mutual Funds In India
1. Large-Cap Funds
There are different equity mutual fund types, including large-cap, mid-cap, small-cap funds and more. Let us begin with large-cap funds.
Large-cap funds have at least 80% of their entire portfolio allocated to equities or equities-related assets of large-cap firms2. Large-cap companies, or the top 100 listed companies by market capitalisation, are the primary investments of these funds.
Due to investment in companies with the largest capitalisation, these funds are subject to lower volatility and can offer comparatively stable equity returns at lower risk. Discussed next is the risk and returns offered by this category.
| Parameter | Three Years (%) | Five Years (%) | Ten Years (%) |
| Returns | 15.39 | 18.59 | 12.913 |
| Standard Deviation | 12.2406 | 13.7291 | 15.3280 |
| Sharpe Ratio | 0.6421 | 0.8764 | 0.4872 |
| Sortino Ratio | 1.0995 | 1.6462 | 0.7394 |
Source: MorningStar, As Of Oct 20254
These funds are suitable for beginners and other risk-averse, conservative investors, aiming for portfolio growth through limited risk.
Now, let us discuss the two other most popular types of mutual funds in India, mid-cap and small-cap funds.
2. Mid-Cap Funds And Small-Cap Funds
According to the SEBI categorisation, while mid-cap funds have 65% of their assets invested in equity or related assets of mid-cap companies, small-cap funds have 65% invested in small-cap companies6.
These equity mutual fund types offer higher returns compared to the large-cap funds, due to their higher risk intake, resulting from their asset allocation.
| Mutual Fund Type | Asset Allocation | Stock Ranking Based on Market Cap |
| Mid-cap funds | Mid-cap stocks | Stocks ranked between 101–250 |
| Small-cap funds | Small-cap stocks | Stocks ranked from 251 and onwards7 |
Source: MoneyControl, as of Oct 20258
Due to investment in emerging businesses, the funds face volatility and risk, resulting in higher growth potential. The table below shows the five-year risk and return performance of the categories.
| Parameter | Small-Cap (%) | Mid-Cap (%) |
| Returns | 28.03 | 25.39 |
| Standard Deviation | 17.2396 | 16.2008 |
| Sharpe Ratio | 1.1972 | 1.1525 |
| Sortino Ratio | 2.1552 | 2.1271 |
Source: Morningstar, as of Oct 20259
These funds are suitable for aggressive investors looking for portfolio growth. Let us now take a look at a unique fund category called sectoral mutual funds.
3. Thematic Or Sectoral Mutual Funds
These are focused investment avenues. While sectoral funds invest in stocks of companies operating in a particular industry, thematic mutual funds follow a theme. They can invest across companies operating in various industries but are united based on a broad theme.
For instance, the table below gives an example of the above categories.
| Particular | Fund Category | Explanation |
| Axis India Manufacturing | Sectoral | Invests in manufacturing sector stocks |
| HSBC India Export Opportunities | Thematic | Invests in companies of different sectors with export opportunities10 |
These funds have 80% of their portfolio invested in a specific sector or theme11. These funds have a very high risk because their portfolio is susceptible to a particular sectoral volatility. It is appropriate for investors who have sectoral expertise and a high tolerance for risk. Take a look at the average returns of different sectoral fund categories.
| Mutual Fund Sector | Three-Year Return (%) | Five-Year Return (%) |
| Financial Services | 17.03 | 20.90 |
| Technology | 12.29 | 14.97 |
| Healthcare | 21.89 | 17.31 |
| Infrastructure | 24.12 | 30.30 |
| FMCG | 11.69 | 14.96 |
Source: MorningStar, as of Oct 202512
Equity mutual fund types also include tax-saving options. Discussed next is one among them, called ELSS mutual funds.
4. ELSS Mutual Funds (Tax-Saving Funds)
Mutual funds that have 80% of their assets invested in equity or related instruments and provide tax-saving benefits are called ELSS mutual funds. Under section 80C of the Income Tax Act of 1961, these funds permit their investors to deduct up to INR 1.5 lakhs from their total income.
For example, if A invests INR 1,00,000 in an ELSS fund in one fiscal year, assuming a total taxable income of INR 4,00,000, his taxable income after the 80C income tax deduction will be INR 3,00,000.
Three years from the date of allotment is a lock-in period9. Units can be redeemed only after this period ends. The table below shows the category average risk and return metrics.
| Parameter | Three-Year (%) | Five-Year (%) |
| Return | 17.45 | 20.58 |
| Standard Deviation | 13.4195 | 14.7371 |
| Sharpe Ratio | 0.7832 | 1.0807 |
| Sortino Ratio | 1.2887 | 2.0470 |
Source: Morningstar, as of Oct 202514
Given the economic risks like inflation, market volatility, etc., reinvestment of returns and diversification are essential to optimise the returns from the best equity funds and create wealth over time.
Certain Grip products, like corporate bonds, can aid in it.
How Grip Products Complement Equity Investing
Imagine A invested INR 5,000 per month for 10 years. Assuming a 12% return, his total corpus on maturity will be INR 11,61,695.
Now, if he reinvests a portion of this return, say INR 4,00,000, into a corporate bond, given 9% to 14% yield-to-maturity (YTM) on bonds, he can earn a return of INR 56,000 in one year.
This reinvestment allows him to increase his returns, whilst mitigating risk through debt investing. Moreover, it balances the risk metric of the total portfolio by giving debt exposure. The key highlights of bonds on Grip are discussed next.
| Particulars | Description | Particulars |
| YTM (%) | 9 to 14 | YTM (%) |
| Repayment | Periodic | Repayment |
| Risk | Low to Medium | Risk |
| Protection against inflation | Yes | Protection against inflation |
Conclusion
Equity mutual funds offer a powerful way to build long-term wealth by allowing investors to participate in India’s growth story across diverse sectors and market caps. Whether it’s large-cap funds for stability, mid and small-cap funds for higher growth potential, or thematic and ELSS funds for targeted or tax-efficient investing — each type serves a unique role in wealth creation.
However, while equity funds deliver strong growth potential, market volatility and sector-specific risks make diversification essential. Combining these with fixed-income instruments such as corporate bonds can help balance risk and generate consistent returns.
Log in to Grip Invest and explore high-yield corporate bonds with 9–12.5% YTM, offering a smart way to complement equity exposure and achieve stable, inflation-protected income.
FAQs On Types Of Equity Mutual Funds In India
1. How do large-cap funds differ from mid-cap and small-cap funds?
Large-cap funds invest in large-cap stocks, which are the top 100 listed companies based on market capitalisation. Whereas, small-cap and mid-cap funds invest in emerging small and mid-cap companies. Therefore, large-cap funds offer more stable returns and a lower risk profile than mid-cap and small-cap funds.
2. Are sectoral or thematic funds riskier than diversified equity funds?
Sectoral or thematic funds are high-risk funds that are prone to volatility of particular sectors or themes. Therefore, they are suitable for experienced investors with industry and domain knowledge. The risk metric of an asset depends on the risk-bearing capacity of an investor.
3. Can equity mutual funds help with long-term wealth creation?
Equity mutual funds are suitable for long-term wealth creation. Investors must analyse the category average and fund sepsis risk and return metrics over different tenures to understand the duration of investment.
References:
1. The Business Standard, accessed from: https://www.business-standard.com/finance/personal-finance/equity-mutual-funds-see-335-growth-in-5-yrs-small-cap-funds-lead-returns-125082900441_1.html
2. SEBI, accessed from: https://www.sebi.gov.in/legal/circulars/oct-2017/categorization-and-rationalization-of-mutual-fund-schemes_36199.html
3. Money Control, accessed from: https://www.moneycontrol.com/news/business/personal-finance/sebi-should-widen-definitions-to-increase-number-of-large-and-mid-cap-stocks-11935251.html
4. MorningStar, accessed from: https://www.morningstar.in/tools/mutual-fund-category-risk-measures.aspx
5. Money Control, accessed from: https://www.moneycontrol.com/mutual-funds/performance-tracker/returns/large-cap-fund.html
6. SEBI, accessed from: https://www.sebi.gov.in/legal/circulars/oct-2017/categorization-and-rationalization-of-mutual-fund-schemes_36199.html
7. Money Control, accessed from: https://www.moneycontrol.com/news/business/personal-finance/sebi-should-widen-definitions-to-increase-number-of-large-and-mid-cap-stocks-11935251.html
8. Money Control, accessed from: https://www.moneycontrol.com/mutual-funds/performance-tracker/returns/sectoralthematic.html
9. Money Control, accessed from: https://www.moneycontrol.com/news/business/personal-finance/sebi-should-widen-definitions-to-increase-number-of-large-and-mid-cap-stocks-11935251.html
10. MorningStar, accessed from: https://www.morningstar.in/tools/mutual-fund-category-risk-measures.aspx
11. SEBI, accessed from: https://www.sebi.gov.in/legal/circulars/oct-2017/categorization-and-rationalization-of-mutual-fund-schemes_36199.html
12.MorningStar, accessed from: https://www.morningstar.in/tools/mutual-fund-category-performance.aspx
13. SEBI, accessed from: https://www.sebi.gov.in/legal/circulars/oct-2017/categorization-and-rationalization-of-mutual-fund-schemes_36199.html
14. MorningStar, accessed from: https://www.morningstar.in/tools/mutual-fund-category-risk-measures.aspx
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