Equity Funds — Value, Contra, Dividend Yield, Focused
Four equity categories are defined by investment strategy rather than company size: Value, Contra, Dividend Yield and Focused. This lesson explains each strategy, the 80% equity minimum, the 30-stock limit and the 50% overlap rule for Value and Contra funds.
Four strategy-based categories
A Value Fund follows a value strategy: it looks for shares priced low relative to measures such as earnings or book value. A Contra Fund follows a contrarian strategy, buying shares that are currently out of favour with the market. A Dividend Yield Fund invests mainly in dividend-paying companies. A Focused Fund holds at most 30 stocks.
Each of the four must hold at least 80% of its assets in equity. Under the 2017 framework the minimum was 65%; SEBI's categorisation of 26 February 2026 raised it to 80%.
Value and Contra from one fund house
Under the 2017 framework a fund house could offer either a Value Fund or a Contra Fund, not both. It may now offer both, provided the two portfolios overlap by no more than 50%. The cap keeps the two schemes distinct from each other.
Portfolio overlap between two schemes is found by taking each holding they have in common, noting the lower of its two weights, and adding these up. Fund houses disclose category-wise overlap every month.
Focused Funds and concentration
A Focused Fund is defined by a number: at most 30 stocks, with at least 80% in equity. It is not tied to one sector, unlike a Sectoral Fund, and the category itself does not restrict it to large-cap companies.
With so few holdings, each stock has a larger effect on the fund's value than it would in a widely spread portfolio. This is concentration risk: one holding that falls sharply pulls the whole fund down further.
The risks in these strategies
All four are market-linked equity funds, and their value can fall. Value and contrarian strategies can lag the wider market for long periods, because a share the market prices low can stay low.
Dividends from companies are not assured. A Dividend Yield Fund's holdings can reduce or skip their dividends, and its NAV still moves with share prices.
Rules at a glance
Thirty stocks against sixty (illustrative arithmetic)
Assume a Focused Fund spreads its whole portfolio equally over 30 stocks, so each is 100 ÷ 30 = about 3.33% of the portfolio. If one stock falls by 30% while the others are unchanged, the fund's value falls by about 3.33% × 30% = 1%.
In a portfolio spread equally over 60 stocks, each holding is 100 ÷ 60 = about 1.67%, and the same 30% fall in one stock moves the portfolio by about 0.5%. The fewer the holdings, the more each one matters, on the way up as well as on the way down.
Measuring overlap between a Value Fund and a Contra Fund (assumed weights)
- Assume two schemes of one fund house have four shares in common. Their weights in the Value Fund and in the Contra Fund are: Share A 8% and 5%; Share B 6% and 9%; Share C 4% and 4%; Share D 7% and 2%.
- Take the lower of the two weights for each share: A 5%, B 6%, C 4%, D 2%.
- Add them up: 5% + 6% + 4% + 2% = 17%.
- Every other holding appears in only one of the two schemes, so it adds nothing to the overlap.
Result. The portfolio overlap is 17%, which is within the 50% cap that allows a fund house to offer both schemes.
Key points
- A Value Fund follows a value strategy and a Contra Fund a contrarian strategy; each holds at least 80% in equity.
- A Dividend Yield Fund invests mainly in dividend-paying companies, with at least 80% in equity; dividends are not assured.
- A Focused Fund holds at most 30 stocks and at least 80% in equity.
- The 80% minimum for these four categories was 65% under the 2017 framework.
- A fund house may offer both a Value Fund and a Contra Fund if their portfolios overlap by no more than 50%.
- These strategies can lag the wider market for long periods, and fewer stocks means more concentration risk.
Common misunderstandings
- The equity minimum for these four categories is not 65%: that was the 2017 figure, and it is now 80%.
- A Focused Fund is not a sector fund: its limit is on the number of stocks (at most 30), not on the sectors they come from.
- A Dividend Yield Fund does not assure an income: companies' dividends are not assured, and the fund's NAV moves with share prices.
Questions people ask
Is a Focused Fund restricted to large-cap companies?
No. The category sets a maximum of 30 stocks and a minimum of 80% in equity. It does not itself restrict the fund to large caps or to any one sector.
How is the overlap between two portfolios measured?
For each holding the two schemes have in common, take the lower of its two weights, then add these figures up.
Does a value strategy make a fund low-risk?
No. A Value Fund holds at least 80% in equity, so it is market-linked and can lose value, and a value strategy can lag the wider market for long periods.
What this lesson relies on
- SEBI Master Circular for Mutual Funds (20 March 2026) — Chapter 3, categorisation of mutual fund schemes, including monthly disclosure of portfolio overlap
- SEBI circular of 26 February 2026 on categorisation of mutual fund schemes
This lesson was reviewed independently against these sources on 8 October 2026. Rules change: check the current regulation, scheme document or policy wording before relying on any figure. This is education, not advice.