Framework Revised for $900 Billion Industry

In a circular dated February 26, the Securities and Exchange Board of India introduced new scheme categories and revised investment norms for mutual funds. The changes apply across India’s mutual fund industry, which is valued at about $900 billion, according to industry data.

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SEBI added life-cycle funds and sectoral debt funds, increasing the total number of mutual fund categories to 40 from 36. The regulator discontinued solution-oriented schemes with immediate effect and directed existing schemes under this category to stop fresh subscriptions and merge with similar schemes, subject to regulatory approvals.

Equity mutual funds recorded inflows of ₹12.02 trillion in the last five years, equivalent to $132.24 billion, according to industry data cited in the release.

Stricter Overlap And Allocation Norms

SEBI stated that asset management companies may continue to offer both value and contra funds, but the overlap between the two portfolios cannot exceed 50%. For thematic equity schemes, portfolio overlap with other thematic or equity categories, except large-cap schemes, cannot exceed 50%.

Thematic funds have been given three years to comply with the revised norms, while other schemes must comply within six months. Fund houses are required to publish monthly category-wise portfolio overlap disclosures on their websites.

The framework retains a minimum 80% equity allocation requirement for dividend yield, value, and contra funds to ensure schemes remain aligned with their stated category.

Gold And Silver Exposure Formalised

Under the revised rules, equity schemes may allocate their “residual portion” to gold and silver instruments. Hybrid schemes are permitted to invest in gold and silver exchange-traded funds.

Life-cycle funds introduced under the new framework can invest up to 10% of their corpus in gold and silver exchange-traded funds, exchange-traded commodity derivatives, and infrastructure investment trusts.

SEBI defined the residual portion as the part of a scheme’s corpus remaining after meeting its core asset allocation requirements. With the circular dated February 26, mutual fund schemes will be required to align their portfolios, disclosures, and positioning of categories in accordance with the new structure.