ICICI Pru’s multi-asset FoF freeze sparks concern: What “grandfathering” really means for investors
ICICI Prudential Mutual Fund’s decision to grandfather the ICICI Prudential Passive Multi-Asset Fund of Fund (FoF) and stop fresh investments from January 27, 2026 has triggered fresh questions among investors who rely on diversified passive strategies for long-term portfolios.
The scheme, which manages around Rs 1,415 crore in assets, will continue to operate for existing investors but will eventually be merged and/or wound up after three years from January 20, 2026, as per regulatory directions. The move follows SEBI’s tightening of the framework governing multi-asset Fund of Fund structures.
While no immediate losses or forced redemptions are involved, the development carries important implications for investors, distributors, and advisors who had positioned the fund as a core diversified product.
What exactly is happening to the ICICI Pru Passive Multi-Asset FoF
ICICI Prudential Mutual Fund informed unitholders that the scheme will be “grandfathered” under SEBI’s revised Fund of Fund framework.
The regulator, through its February 6, 2025 letter to AMFI, introduced stricter categorisation norms for FoF products. Subsequently, in a January 20, 2026 communication, SEBI allowed this particular scheme to be grandfathered since its asset allocation and investment objective do not fit neatly into any of the new categories.
Key operational changes include:
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From January 27, 2026, the scheme will stop accepting fresh lump-sum investments
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New SIPs and STPs will be discontinued
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Existing SIPs and STPs will stop from February 5, 2026
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IDCW reinvestment option will be converted to IDCW payout
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Investors can continue redemptions, switch-outs, SWPs and STP-outs
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The scheme will be merged or wound up after three years
In short, existing investors can stay invested, but the fund will gradually move toward closure.
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Why SEBI’s new FoF framework triggered this decision
The regulatory backdrop is crucial to understanding why a popular, well-diversified fund is being phased out.
SEBI’s new framework aims to:
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Reduce product overlap
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Improve transparency in fund categorisation
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Ensure that FoF schemes align clearly with defined investment buckets
Because ICICI Pru Passive Multi-Asset FoF invests across domestic equity ETFs, debt ETFs, overseas ETFs, and gold, it no longer fits cleanly into any permitted category under the new rules.
Instead of forcing a sudden restructuring that could hurt investors, SEBI allowed the AMC to grandfather the product — a regulatory compromise that protects existing unitholders while enforcing discipline for future launches.
How the fund was positioned and why investors liked it
Launched in 2022, the scheme built its appeal around simple, diversified, passive allocation across asset classes.
As of December 31, 2025, the portfolio allocation stood at:
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71% in domestic equity and debt ETFs
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25.5% in overseas ETFs
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Balance in short-term debt and cash
This structure made the fund attractive for:
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Long-term investors seeking one-product diversification
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SIP investors wanting exposure to equity, debt, global markets and gold
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Passive investors who preferred ETF-based strategies over active stock picking
Its growing AUM of Rs 1,415 crore reflects that investor adoption was healthy — which is why the announcement has surprised many.
Here’s what happened today and why traders reacted
While this development does not directly impact equity indices, it has generated meaningful chatter in the mutual fund and advisory ecosystem.
Market participants reacted for three reasons:
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Distributors began reviewing client portfolios holding this scheme
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Investors questioned whether similar multi-asset FoFs across AMCs could face scrutiny
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Advisors started preparing switch recommendations into alternative multi-asset or asset allocation funds
In the short term, this is not a trading event. But in the medium term, it reshapes how passive multi-asset products may be constructed in India.
Fund houses may now become more cautious while designing FoFs, and investors could see fewer “all-in-one” passive products going forward.
What this means for your portfolio if you already hold the fund
For existing investors, the most important takeaway is this: your investment is not at risk simply because the fund is being grandfathered.
You still retain:
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Full redemption rights
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Ability to switch out anytime
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Ongoing SWP facility
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Continued fund management under the current strategy
However, there are portfolio planning implications.
If you were using this fund for:
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Monthly SIP-based long-term wealth creation
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Systematic asset allocation
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Core portfolio diversification
…you will need to identify an alternative product before February 5, 2026, when SIPs and STPs stop.
Investors who delay this transition risk being forced to restructure their portfolios closer to the eventual merger or wind-up date, which could be less efficient.
Should investors exit immediately or stay invested for now?
There is no one-size-fits-all answer, but some guiding principles apply.
You may consider staying invested if:
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The fund continues to align with your asset allocation
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You are satisfied with its long-term strategy
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You are comfortable monitoring it until a merger/wind-up is announced
You may consider planning an exit if:
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This fund is your primary SIP vehicle
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You prefer products with long-term continuity
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You want greater certainty over product structure
The key is not panic, but proactive planning.
Why this episode matters beyond just one fund
This is not merely about one ICICI Prudential scheme. It signals a larger regulatory shift in how multi-asset and FoF products will evolve.
Going forward:
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AMCs may launch fewer experimental hybrid FoFs
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Product structures will likely become more rigid
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Investors may need to use multiple funds instead of one multi-asset FoF to achieve diversification
In effect, responsibility for asset allocation could shift more toward investors and advisors rather than being packaged inside a single FoF product.
The bottom line for investors
The grandfathering of ICICI Pru Passive Multi-Asset FoF is not a crisis — but it is a clear portfolio checkpoint.
The scheme remains functional. Your money is safe. But your future investment strategy must now adapt.
For disciplined investors, this is an opportunity to:
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Revisit asset allocation
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Reassess diversification
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Choose more structured long-term products
As one senior distributor put it succinctly:
“Nothing is broken today, but every investor should now start planning what replaces this fund tomorrow.”
