Sebi plans revamp of MF categorisation norms to curb scheme overlap
Mumbai, Jul 18, 2025
Sebi proposes a revamp of mutual fund categorisation norms to reduce redundant schemes, allow more fund innovation, and provide flexibility to fund houses while ensuring diversification and better liq
The Securities and Exchange Board of India (Sebi) has proposed a comprehensive overhaul of rules guiding how the Rs 75-trillion mutual fund (MF) industry designs its offerings. The redesign—first since the introduction of the so-called categorisation norms in 2017—aims to curb the mushrooming of near-identical schemes while giving fund houses room to innovate.
In a consultation paper released on Friday, Sebi proposed allowing fund houses to launch retirement fund-of-funds (FoFs) with a target maturity strategy, enabling them to attract long-term, pension fund-like money.
Meanwhile, fund houses managing schemes exceeding Rs 50,000 crore will also gain leeway to launch additional schemes in the same category to address liquidity challenges, particularly in small-cap and mid-cap spaces.
To enhance diversification, Sebi plans to permit equity-oriented schemes to invest in gold and silver, beyond their current scope of equity, debt, REITs, and InvITs. This move aims to provide better downside protection during periods of high equity valuations, according to MF officials.
Earlier in April, Sebi had proposed raising the cap on REITs and InvITs exposure from 10 per cent to 20 per cent.
To prevent redundant launches, Sebi introduced a 50 per cent cap on portfolio overlap between sectoral/thematic equity schemes and other equity schemes, except large-cap funds.
This follows a surge in thematic and sectoral schemes, which grew from 149 to 202 in 2024, with passive schemes also rising over 12 per cent, largely in thematic and factor-based categories. Sebi plans separate regulations to address passive scheme proliferation.
The regulator will bring in separate rules to curtail the proliferation of schemes in the passive space.
The regulator has also proposed expanding active equity, hybrid, and debt categories. Fund houses can now offer both value and contra schemes (previously limited to one) and both balanced and aggressive hybrid funds. A new sectoral debt fund category, investing over 80 per cent in debt instruments of a specific sector, was also introduced.
In the solution-oriented space, Sebi plans to expand the number of permissible schemes from two to six.
The newly proposed retirement FoF category will invest across equity, hybrid, and debt funds, with a life cycle FoF launch permitted every five years for a maximum tenure of 30 years.
[The Business Standard]
