By WealthKit · 6 min read · Published Jul 2026 · Updated Jul 2026
Before 2017, fund names in India meant almost nothing — two funds both calling themselves "large cap" could hold very different kinds of stocks, and comparing them meaningfully required reading the fine print of each one's mandate. SEBI's mutual fund categorisation circular changed that by giving every major equity category a strict, rank-based definition that every AMC has to follow.
SEBI defines large-cap, mid-cap and small-cap not by a fixed rupee market-cap threshold, but by RANK — every listed company is ranked by full market capitalisation, and a periodically updated list assigns each company to a bucket. Companies ranked 1st to 100th by market cap are "large cap". Companies ranked 101st to 250th are "mid cap". Everything ranked 251st and beyond is "small cap".
This matters because it means the definition automatically adjusts as the market grows — a company that would have been "small cap" a decade ago might rank into "mid cap" territory today purely because the overall market has grown around it, without the company itself changing much.
A Large Cap Fund must invest a minimum of 80% of its assets in large-cap stocks (rank 1-100). A Mid Cap Fund must hold at least 65% in mid-cap stocks (rank 101-250). A Small Cap Fund must hold at least 65% in small-cap stocks (rank 251+). A Large & Mid Cap Fund must hold at least 35% in each of the large-cap and mid-cap buckets — meaning at least 70% combined, by definition, across the two.
A Flexi Cap Fund is the odd one out: it has no minimum requirement in any specific market-cap bucket at all, beyond a general requirement to stay meaningfully invested in equity. This gives the fund manager complete freedom to move between large, mid and small caps based on where they see opportunity — which also means two "Flexi Cap" funds can look completely different from each other, unlike two Large Cap funds, which are forced by regulation to look at least somewhat similar.
Because the mandate is enforced by regulation rather than just described in marketing material, you can compare two Large Cap funds' returns reasonably fairly — they're drawing from a similar universe of stocks by law, so a performance gap between them mostly reflects genuine stock-picking or timing skill rather than one fund quietly taking on more mid-cap risk to juice returns.
This is also why category matters when checking overlap between funds (see our guide on portfolio overlap): two funds in the SAME SEBI category are structurally more likely to hold similar stocks than two funds in different categories, simply because they're both constrained to the same slice of the market.
SEBI's framework also covers Thematic and Sectoral funds (concentrated in a specific theme like infrastructure, or a single sector like banking — inherently less diversified and higher risk), ELSS/Tax Saver funds (equity funds with a mandatory 3-year lock-in that qualify for Section 80C tax deduction), and Hybrid funds (which mix equity and debt in varying proportions, from conservative to aggressive). Each has its own minimum-allocation rules defined the same way — by regulation, not by name alone.
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