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3.2 Classification of Mutual Funds

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NISM-Series-V-A: Mutual Fund Distributors Certification Examination Exam

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1 Chapter 1: Introduction & Exam Overview

1.1 About the NISM-Series-V-A Examination 1.2 The 12-Unit Curriculum Map and a Study Plan

2 Chapter 2: Investment Landscape

2.1 Investors and Their Financial Goals 2.2 Savings or Investments? 2.3 Different Asset Classes 2.4 Investment Risks 2.5 Risk Measures and Management Strategies 2.6 Behavioural Biases in Investment Decision Making 2.7 Risk Profiling 2.8 Asset Allocation and Do-It-Yourself versus Professional Help

3 Chapter 3: Concept and Role of a Mutual Fund

3.1 Concept of a Mutual Fund 3.2 Classification of Mutual Funds 3.3 Growth of the Mutual Fund Industry in India

4 Chapter 4: Legal Structure of Mutual Funds in India

4.1 Structure of Mutual Funds in India 4.2 Key Constituents of a Mutual Fund 4.3 AMC Organisation Structure and Service Providers 4.4 Role and Function of AMFI

5 Chapter 5: Legal and Regulatory Framework

5.1 Role of Regulators in India 5.2 Role of SEBI and the Mutual Fund Regulations 5.3 Due Diligence Process by AMCs for Distributors 5.4 Investor Grievance Redress Mechanism 5.5 AMFI Code of Conduct for Intermediaries

6 Chapter 6: Scheme Related Information

6.1 Mandatory Documents I: Scheme Information Document and Statement of Additional Information 6.2 Mandatory Documents II: Key Information Memorandum and the Advertisement Code 6.3 Non-Mandatory Disclosures

7 Chapter 7: Fund Distribution and Channel Management Practices

7.1 The Role and Importance of Mutual Fund Distributors 7.2 Different Kinds of Mutual Fund Distributors 7.3 Modes of Distribution 7.4 Pre-requisites to Become a Distributor of a Mutual Fund 7.5 Revenue for a Mutual Fund Distributor 7.6 Commission Disclosure Mandated by SEBI 7.7 Distributors versus Investment Advisers, Nomination Facilities and Change of Distributor

8 Chapter 8: Net Asset Value, Total Expense Ratio and Pricing of Units

8.1 Fair Valuation Principles 8.2 Computation of Net Assets of a Scheme and NAV 8.3 Dividends and Distributable Reserves 8.4 Entry and Exit Load and Its Impact on NAV 8.5 The Expense Ratio Framework: Base Expense Ratio, Brokerage and Statutory Levies 8.6 Key Accounting and Reporting Requirements 8.7 NAV, Total Expense Ratio and Pricing of Units for the Segregated Portfolio

9 Chapter 9: Taxation

9.1 Applicability of Taxes in Respect of Mutual Funds 9.2 Capital Gains on Mutual Fund Units 9.3 Dividend (IDCW) Income and Tax Deducted at Source 9.4 Stamp Duty and Securities Transaction Tax on Mutual Fund Units 9.5 Setting Off Capital Gains and Losses under the Income Tax Act 9.6 Tax Benefit under Section 80C and Applicability of GST

10 Chapter 10: Investor Services

10.1 The New Fund Offer Process 10.2 New Fund Offer Price and Ongoing Offer Price for Subscription 10.3 Investment Plans and Services 10.4 Allotment of Units and Account Statements 10.5 Mutual Fund Investors: Who Can Invest 10.6 Filling the Application Form for Mutual Funds 10.7 Financial Transactions with Mutual Funds 10.8 Cut-Off Time and Time Stamping 10.9 KYC Requirements for Mutual Fund Investors 10.10 Systematic Transactions and Their Operational Aspects 10.11 Non-Financial Transactions, Special Investor Categories and Turnaround Times

11 Chapter 11: Risk, Return and Performance of Funds

11.1 General and Specific Risk Factors 11.2 Factors That Affect Mutual Fund Performance 11.3 Drivers of Returns and Risk in a Scheme 11.4 Measures of Returns 11.5 SEBI Norms Regarding Representation of Returns 11.6 Risks in Fund Investing: The Investor's Perspective 11.7 Measures of Risk and Provisions Relating to Credit Risk

12 Chapter 12: Mutual Fund Scheme Performance

12.1 Benchmarks and Performance 12.2 Price Return Index or Total Return Index 12.3 Basis of Choosing an Appropriate Performance Benchmark 12.4 Benchmarks for Equity Schemes 12.5 Benchmarks for Debt Schemes and Other Schemes 12.6 Quantitative Measures of Fund Manager Performance 12.7 Tracking Error and Scheme Performance Disclosure

13 Chapter 13: Mutual Fund Scheme Selection

13.1 Scheme Selection Based on Investor Needs, Preference and Risk Profile 13.2 Risk Levels in Mutual Fund Schemes 13.3 Scheme Selection Based on Investment Strategy 13.4 Selecting a Scheme Across AMCs or Within a Scheme Category 13.5 Selecting Options in Mutual Fund Schemes and Do's and Don'ts

3.2 Classification of Mutual Funds

Key Takeaways Explain This Topic AI

Schemes are classified by structure as open-ended, close-ended or interval.

SEBI's revised categorisation circular of 26 February 2026 restructured the category framework substantially.

The revised framework groups schemes as equity, debt, hybrid, life cycle funds and other schemes.

Life Cycle Funds are a new glide-path category, and the solution-oriented group has been discontinued.

Minimum equity allocation was raised to 80% for focused, contra, value, dividend-yield and ELSS schemes.

Last updated: August 2026

  • Classification by Structure
  • Open-Ended Schemes

Units may be bought from and sold back to the fund on any business day at the applicable NAV. There is no fixed maturity , and the corpus expands and contracts continuously with subscriptions and redemptions. This is the dominant structure in India because it provides liquidity directly from the scheme.

Close-Ended Schemes

Units are issued only during the New Fund Offer and the scheme has a fixed maturity . The fund does not repurchase units, so SEBI requires close-ended schemes to be listed on a stock exchange to give investors an exit route. That exit is at the market price, which frequently trades at a discount to NAV — the practical drawback the exam expects you to identify.

A fixed corpus is the compensating advantage: the manager faces no redemption pressure and can hold less liquid assets to maturity.

Interval Schemes

A hybrid of the two. The scheme is close-ended in structure but opens for purchase and redemption during pre-specified transaction periods at defined intervals. Units must also be listed.

  • Feature Open-ended Close-ended Interval
  • Maturity None Fixed Fixed with periodic windows
  • Ongoing sale/repurchase Yes, any business day No Only in transaction periods
  • Listing Not required Required Required
  • Corpus Variable Fixed Largely fixed
  • Exit price NAV Market price, often at a discount NAV during window
  • Classification by Asset Class and Strategy

SEBI first standardised scheme categories in 2017 to stop AMCs running many near-identical schemes under different names. That framework was substantially revised by SEBI's circular of 26 February 2026 on categorisation and rationalisation of mutual fund schemes, which took effect immediately with a phased compliance window for existing schemes — broadly six months, extending to three years for thematic schemes.

Under the revised framework, schemes fall into five groups:

  • Equity schemes
  • Debt schemes
  • Hybrid schemes
  • Life Cycle Funds (new)
  • Other schemes — index funds, ETFs and fund of funds
  • Equity Schemes

Categories remain organised by market capitalisation and by strategy: large cap, mid cap, small cap, large and mid cap, multi cap, flexi cap, focused, value, contra, dividend yield, sectoral and thematic, and ELSS.

The revised circular tightened these in three ways:

Minimum equity raised to 80% for dividend yield, value, contra, focused and ELSS schemes, up from 65%, so that each stays true to its label.

Portfolio overlap capped at 50% for value, contra, sectoral and thematic schemes against other equity schemes of the same AMC, with monthly disclosure of overlap levels.

An AMC may now offer both a value fund and a contra fund , which the earlier framework did not permit.

Market-capitalisation definitions continue to follow AMFI's half-yearly list: the top 100 companies by full market capitalisation are large cap, the next 150 are mid cap, and the remainder are small cap.

Debt Schemes

Duration-based classification continues — overnight, liquid, ultra short, low duration, money market, short, medium, medium-to-long and long duration — alongside credit-based and issuer-based categories such as corporate bond, credit risk, banking and PSU, gilt, and floater.

The revised circular adds Sectoral Debt Funds , requiring at least 80% investment in debt of a single sector such as financial services, energy, infrastructure, housing or real estate, and holding predominantly high-rated paper.

Hybrid Schemes

Conservative hybrid, balanced hybrid, aggressive hybrid, dynamic asset allocation or balanced advantage, multi asset allocation, arbitrage and equity savings. The revised rules allow limited residual allocation to gold and silver ETFs for diversification.

Life Cycle Funds — the new group

Open-ended schemes built for long-horizon goal-based investing. They carry a target maturity year and follow a glide path that reduces equity and increases debt as maturity approaches.

  • Tenures from 5 to 30 years , in multiples of five years
  • Each AMC may launch up to six such schemes
  • Graded exit load of 3% in year one, 2% in year two and 1% in year three
  • Solution-Oriented Schemes — discontinued

The solution-oriented group has been discontinued . Existing retirement and children's schemes must stop accepting fresh subscriptions and are to be merged into schemes of similar asset allocation and risk profile with SEBI's approval. Life Cycle Funds are the intended replacement for goal-linked long-horizon investing.

Other Schemes

Index funds and ETFs track a stated index passively. Fund of funds invest in units of other schemes. Both are grouped under other schemes rather than by asset class.

Naming Rules

The revised circular requires scheme names to align strictly with the category and prohibits names that emphasise return potential alone , so that a name cannot imply an outcome the scheme does not promise.