India’s mutual fund landscape is set for a major reset after the Securities and Exchange Board of India (SEBI) tightened scheme categorisation, capped portfolio overlaps and scrapped solution-oriented funds, in a move aimed at ensuring schemes remain true to their stated mandates.
The overhaul expands the number of mutual fund categories from 36 to 40. The revised structure includes 13 equity, 17 debt, seven hybrid, two under the “other” category (index funds, ETFs and fund of funds) and one new life cycle category.
One of the most significant changes is the discontinuation of solution-oriented schemes such as retirement and children’s plans. Existing schemes must stop fresh subscriptions immediately and merge with similar schemes after regulatory approval.
In their place, SEBI has introduced Life Cycle Funds. These will follow a glide path strategy, automatically reducing equity exposure as the fund approaches maturity. Tenures will range from 5 to 30 years, with allocations spanning equity, debt, gold and silver ETFs and InvITs. The aim is to align risk with different life stages and reduce emotionally driven asset allocation decisions.
SEBI has also imposed tighter caps on portfolio overlap, particularly for sectoral, thematic, value and contra funds.
Asset management companies may now run both value and contra funds simultaneously, but portfolio overlap between the two cannot exceed 50 percent. For thematic equity schemes, overlap with other thematic schemes and equity categories (except large cap funds) is capped at 50 percent.
Thematic funds have been given three years to comply with the new norms, while other schemes must align within six months.
Importantly, overlap will now be measured on a quarterly basis, calculated as the average of daily portfolio overlap during the period. Fund houses must also disclose monthly category-wise overlap data on their websites — equity versus equity, debt versus debt, and hybrid versus hybrid.
SEBI has tightened naming norms, requiring scheme names to clearly reflect their categories. It has also mandated a minimum 80 percent equity allocation for dividend yield, value and contra funds.
The regulator has broadened residual investment flexibility, allowing non-core allocations into gold, silver and InvITs, formalising the shift towards multi-asset diversification.
For investors, the changes may appear incremental. But structurally, SEBI is signalling a clear message: different fund labels must represent genuinely distinct portfolios, reducing duplication and improving transparency across India’s mutual fund industry.