Big changes are coming for mutual fund investors.
The market regulator Securities and Exchange Board of India (Sebi) has completely revamped the way mutual fund schemes are categorized and named.
The goal is simple: reduce confusion, improve transparency, and ensure that funds invest exactly as their names suggest.
No More Fancy Names Like “High Return”
Under the new circular, mutual fund scheme names must clearly match their actual category.
Funds can no longer use return-focused words like “high return” or “super growth” in their names.
Sebi wants “true-to-label” investing — meaning what you see in the name is what you get in the portfolio.
Asset Management Companies (AMCs) will also have to disclose portfolio overlaps between:
Equity vs equity schemes
Debt vs debt schemes
Hybrid vs hybrid schemes
All AMCs must comply with the new rules within six months.
Major Changes in Equity Schemes
Sebi has tightened rules for equity mutual funds.
Sectoral and thematic funds cannot have more than 50% portfolio overlap with other equity schemes (except large-cap funds).
Funds have been given three years to reduce overlap:
Year 1: Reduce 35%
Year 2: Reduce another 35%
Year 3: Reduce the remaining 30%
Overlap will be checked every quarter.
Clear minimum investment norms have also been defined:
Large Cap Fund – 80% in large caps
Mid Cap Fund – 65% in mid caps
Small Cap Fund – 65% in small caps
Multi Cap Fund – At least 25% each in large, mid, small caps
Flexi Cap Fund – 65% in equity
Focused Fund – Maximum 30 stocks, 80% in equity
Sectoral/Thematic – 80% in one sector or theme
ELSS – 80% in equity
This reduces ambiguity and forces funds to stick to their mandate.
Clear Structure for Debt Funds
Debt schemes will now follow a strict duration-based structure using Macaulay duration.
Examples include:
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 – More than 7 years
Other rules:
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 will be allowed only in specific areas like financial services, energy, infrastructure, housing, and real estate.
New Rules for Hybrid Funds
Hybrid schemes also get clearer allocation rules:
Conservative Hybrid – 75–90% debt
Balanced Hybrid – 40–60% equity and debt
Aggressive Hybrid – 65–80% equity
Arbitrage Fund – 65% equity
Equity Savings – Net equity 15–40%
Hybrid funds can now invest some residual portion in InvITs, Gold ETFs, Silver ETFs, and certain derivatives.
Sebi Introduces Life Cycle Funds
One of the biggest announcements is a new category called Life Cycle Funds.
These are open-ended funds with a target maturity of 5 to 30 years.
They follow a glide path structure — equity exposure reduces as the maturity date approaches.
Rules include:
Maximum six life cycle funds per AMC
Maturity year must be part of the fund name (for example, Life Cycle Fund 2030)
Exit load: 3% in year one, 2% in year two, 1% in year three
Stricter Rules for Fund of Funds
Sebi has also standardized Fund of Funds (FoF) categories:
Domestic Equity FoF
Domestic Debt FoF
Hybrid FoF
Commodity FoF
Overseas FoF
Domestic + Overseas FoF
There will also be a limit on the number of FoFs each AMC can launch.
What This Means for Investors
These changes aim to make mutual funds:
Easier to understand
More transparent
Less overlapping
More aligned with investor expectations
For investors, it becomes simpler to compare funds and know exactly where their money is being invested.
In short, Sebi’s revamp is about bringing clarity and discipline to India’s mutual fund industry — and that could be a positive move for long-term investors.
