ARTICLES

India’s mutual fund industry is constantly evolving, and the latest update from the Securities and Exchange Board of India (SEBI) is a significant one. The market regulator has introduced a fresh recategorisation of mutual fund schemes, reshaping how equity, debt, and hybrid funds are structured.

The previous framework introduced in 2017 helped standardise mutual funds and made it easier for investors to understand different categories. Now, SEBI has updated these rules to further simplify fund structures, introduce new investment options, and reduce confusion among investors.

For investors, the change is less about disruption and more about clarity.

Why SEBI Introduced These Changes

The MF Industry’s AUM has grown from ₹ 31.64 trillion as on February 28, 2021 to ₹82.03 trillion as on February 28, 2026, about 3 fold increase in a span of 5 years, reflecting growing retail participation in market-linked investments.

As more investors enter the market, regulators aim to ensure mutual funds remain transparent and easy to compare. SEBI’s revised categorisation seeks to simplify scheme structures, reduce overlap between funds, and introduce more goal-based investment options.  

A New Category: Life Cycle Funds

One of the most notable additions is the introduction of Life Cycle Funds. These are target-date mutual funds designed around a specific investment horizon, typically ranging from 5 to 30 years.  

They follow what is known as a glide-path strategy, where the asset allocation changes over time. Early in the investment period, the portfolio may have a higher exposure to equities for growth. As the target year approaches, the allocation gradually shifts towards debt and lower-risk assets.

The funds can invest across equity, debt, InvITs, and instruments such as gold and silver ETFs depending on regulatory limits. For investors planning long-term goals such as retirement, this structure offers a more automated approach to managing risk as the investment horizon shortens.

Changes to Existing Solution-Oriented Funds

SEBI has also discontinued the solution-oriented schemes category, which previously included retirement and children’s mutual funds. Existing schemes in this category must stop accepting fresh subscriptions immediately and will eventually be merged with schemes that have similar asset allocation and risk profiles, subject to regulatory approval.  

The move is intended to simplify the product landscape and reduce duplication among goal-labelled schemes.

More Flexibility for Fund Houses

Another change allows asset management companies to offer both value funds and contra funds. Earlier, mutual fund houses were allowed to offer only one of the two. However, SEBI has introduced a 50% portfolio overlap limit between such schemes to prevent excessive similarity between funds.  

A similar rule applies to sectoral and thematic equity schemes. Mutual funds must ensure that the overlap between portfolios across these schemes does not exceed 50%, except in the case of large-cap funds.

Broader Investment Options for Equity Funds

In the equity category schemes, Mutual Funds may invest residual portion in equity, money market instruments and other liquid instruments, gold and silver instruments as permitted by SEBI and in InvITs, subject to the ceilings laid out in MF regulations with respect to the respective asset class

This change allows fund managers more flexibility to diversify portfolios and manage risk.  

What This Means for Investors

For most investors, these changes do not require immediate action. Existing investments will continue, although some schemes may eventually be merged or restructured to comply with the updated rules.

As India’s investment ecosystem grows, regulatory updates like these aim to ensure that industry expansion is matched by greater transparency and investor protection.
 

Source: SEBI Circular

Disclaimer: Mutual Fund investments are subject to market risks, read all scheme related documents carefully.