SEBI Floats Draft Circular to Revamp Mutual Fund Scheme Categorisation

Proposed overhaul aims to reduce portfolio overlaps, standardize scheme names, and encourage product innovation in MF industry

Mumbai, July 18 – The Securities and Exchange Board of India (SEBI) has issued a draft circular proposing a major revamp of mutual fund scheme categorisation norms, inviting public comments until August 8, 2025, through its web portal. The move comes as India’s mutual fund industry witnesses rapid expansion in both assets under management (AUM) and retail investor participation, prompting the regulator to revisit the existing 2020 framework.

The circular, released on July 18, outlines 20 proposals across five key categories—Equity, Debt, Hybrid, Solution-oriented schemes, and Other schemes—to enhance clarity, reduce redundancy, and maintaining consistency in naming conventions. SEBI noted that the revisions are also in response to industry representations, including those from AMFI (Association of Mutual Funds in India).

Also Read : Foreign Ownership in Indian Banks Under Scrutiny; Possible Regulatory Changes Ahead

Key Proposals: Uniform Naming, Portfolio Limits

To prevent investor confusion and ensure schemes are “true-to-label”, SEBI proposes that scheme names must match their category, eliminating scope for misinterpretation. The regulator also flagged rising instances of portfolio overlaps among schemes, particularly in large AMCs, as a core concern.

“In some cases, there was significant overlap in portfolios. Therefore, it was felt necessary to introduce clear limits to avoid schemes with similar portfolios,” SEBI stated.

The circular is positioned as an update to the earlier November 6, 2020 circular, which first formalized scheme classification rules. This time, the regulator is looking to balance product innovation with investor protection, offering more operational flexibility to fund houses while safeguarding scheme integrity.

Industry Impact: Flexibility for AMCs, Clarity for Investors

If implemented, the framework could reshape how Asset Management Companies (AMCs) design and launch schemes. Many fund houses have faced regulatory roadblocks when introducing thematic or hybrid funds due to rigid classification rules. The proposed flexibility could pave the way for next-generation products, especially in hybrid and solution-oriented categories.

Market watchers say the move could boost investor confidence by making the scheme universe more transparent. It may also help curb the practice of AMCs launching multiple funds with similar underlying portfolios to capture AUM.

What Traders & Investors Should Track

This development may not have a direct equity market impact in the immediate term, but the long-term implications on mutual fund inflows, fund structure, and AUM redistribution across schemes are significant.

Watchlist:

• UTI AMC, HDFC AMC, Nippon Life India AMC (potential operational impact from scheme rationalisation)

• Nifty Financial Services, Nifty 500 Multicap 50:25:25 (may see reshuffling in thematic fund allocations)

• Public consultation window open till August 8, 2025 – investor and industry feedback could influence final guidelines.

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