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Sebi revamps Mutual Fund scheme categories, mandates uniform naming, stricter overlap limits, clear asset allocation, introduces Life Cycle Funds, etc.
Mutual Funds to Stay ‘True to Label’ as SEBI Tightens Category Rules
Sebi MF Categories: The market regulator Sebi has revamped the categories of Mutual Fund schemes. In a new circular, Sebi has announced new detailed framework for scheme categories, characteristics and uniform naming.
It aims to rationalize the existing framework, reduce duplication across schemes, improve transparency, and enforce true-to-label investing.
All scheme name must match the category. Moreover, the regulator in the circular said that funds cannot use return-focused words like ‘high return’ and ‘super growth’.
AMCs are required to disclose equity vs equity overlap, debt vs debt overlap and hybrid vs hybrid overlap.
All AMCs are required to comply with the new rules within 6 months.
Changes in Equity Schemes
Sebi has mandated that sectoral/thematic funds cannot have more than 50 per cent portfolio overlap with other equity schemes except large cap.
The regulator has given the funds 3 years to comply with the new guidelines with a graded reduction plan:
Year 1 – Reduce 35%
Year 2 – Reduce another 35%
Year 3 – Remaining 30%
The overlap will be calculated on quarterly basis.
Minimum investment norms for Equity funds (examples):
- Large Cap Fund – 80% in large caps
- Mid Cap Fund – 65% in mid caps
- Small Cap Fund – 65% in small caps
- Multi Cap Fund – 25% each in large, mid, small (minimum 75% total equity)
- Flexi Cap Fund – 65% in equity
- Focused Fund – Max 30 stocks, 80% in equity
- Sectoral/Thematic Funds – 80% in specific sector/theme
- ELSS – 80% in equity
Changes in Debt Scheme
Sebi has refined the clear duration-based structure using Macaulay duration for debt schemes.
Examples:
- Overnight Fund – 1 day maturity
- Liquid Fund – Up to 91 days
- Short Term Fund – 1 to 3 years
- Medium Term Fund – 3 to 4 years
- Long Term Fund – >7 years
- Corporate Bond Fund – 80% in AA+ and above
- Credit Risk Fund – 65% in AA and below
- Gilt Fund – 80% in government securities
Sectoral debt funds allowed in:
- Financial Services
- Energy
- Infrastructure
- Housing
- Real Estate
Medium & Medium-to-Long funds can reduce duration temporarily in adverse conditions, with some rules, including written justification, and reporting to Sebi.
Changes for Hybrid Schemes
Hybrid schemes are allowed to invest residual in InvITs (except arbitrage), gold ETFs, Silver ETFs and ETCDs.
Clear asset allocation rules:
- Conservative Hybrid – 75–90% debt
- Balanced Hybrid – 40–60% equity & debt (No arbitrage allowed)
- Aggressive Hybrid – 65–80% equity
- Arbitrage Fund – 65% equity; only short-term govt debt allowed
- Equity Savings – Net equity 15–40%
Sebi Introduces Life Cycle Funds (New Structured Category)
Sebi has introduced new structured category known as Life Cycle Funds, which is an open ended funds with a target maturity of 5-30 years. It is a glide path structure in which equity reduces as maturity nears.
The fund can keep a maximum of 6 life cycle funds at one time.
The regulator has mandated to include maturity year in name (for example Life Cycle Fund 2025).
Exit Load:
- 3% in first year
- 2% in second year
- 1% in third year
Changes in Fund of Funds (FoF)
Sebi introduced strict naming rules for Fund of Funds.
Fund of Funds (FoF) – Standardized Framework
FoFs categorized into:
- Domestic Equity FoF
- Domestic Debt FoF
- Hybrid FoF
- Commodity FoF
- Overseas FoF
- Domestic + Overseas FoF
Moreover, the Sebi has put a ceiling on number of FoFs allowed per AMC.
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February 26, 2026, 11:35 IST
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