SEBI Brings New Proposals to Simplify Mutual Fund Schemes

On Friday, market regulator SEBI introduced several proposals to make mutual fund schemes more transparent and easier to understand.

These suggestions aim to reduce similarities in mutual fund portfolios and improve clarity for investors.

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SEBI has also asked the public to share their feedback on these proposals by August 8.

Key Suggestions by SEBI

Launch of Value and Contra Funds with Less Similarity
SEBI has proposed that mutual fund companies can launch both value and contra funds, but the portfolios of these funds should not have more than 50% similarity.

This check should be done at the time of a New Fund Offer (NFO) and every six months based on the month-end portfolio.

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If portfolios are found to be too similar, the Asset Management Company (AMC) will need to make corrections within 30 working days.

Wider Investment Categories
Mutual funds may be allowed to invest in a broader range of asset types including equity, debt (like bonds

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and money market instruments), gold, silver, Real Estate Investment Trusts (REITs), and Infrastructure Investment Trusts (InvITs).

Changes in Naming and Structure of Funds

Simplified Naming of Debt Schemes
SEBI wants to make debt scheme names easier to understand. For example, instead of the term “duration,” the word “term” will be used.

Low Duration Fund will be renamed as “Ultra Short to Short Term Fund”.

Each debt scheme’s name should clearly show its duration, like Overnight Fund (1 day) or Medium Term Fund (3–4 years).

Sectoral Debt Funds with Limited Similarity
SEBI proposed that mutual funds can also launch sectoral debt funds, but their portfolios must not be more than 60% similar to existing sectoral or other debt category schemes.

Use of the Term “Scheme” Instead of “Fund”
SEBI recommended using the word “scheme” instead of “fund” in mutual fund classifications.

For example, instead of “large cap fund,” it should be called “large cap scheme”.
Mutual funds will now be categorized into five main types:

Equity-oriented schemes

Debt-oriented schemes

Hybrid schemes

Solution-oriented schemes

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