Mutual Fund Scheme Changes In India: What SEBI’s New Framework Means For You
The market regulator of India, SEBI (Securities and Exchange Board of India), has proposed several major changes that dictate how mutual fund companies can operate in 2025 and beyond. Mutual fund schemes currently available have lots of overlap and lack clarity. The new rules and amendments take a positive step forward to improve clarity and regulate schemes with similar portfolios.
These mutual fund scheme changes will be effective from July 1, 20251. Continue reading to know more about the recent rule changes and how it will affect you as an investor.
SEBI’s Latest Mutual Fund Rules: The Big Changes In 2025
SEBI has brought many mutual fund regulation amendments with the purpose of strengthening investor protection and operational discipline across the industry
The key changes are:
1. NFO deployment schedule: AMCs have to invest funds collected from New Fund Offers (NFOs) within 30 business days of allotment of units. There is a potential one-time extension of a further 30 days. If deployment is delayed after that, investors are given an exit opportunity without any exit load.
2. Employee "skin in the game" rule: Senior AMC employees are now required to invest a proportion of their compensation in the mutual fund schemes they manage. The more senior, the higher the proportion, aligning interest with unit holders. This move can boost investor confidence and encourage better governance by the AMCs.
3. Disclosure of stress testing: Mutual fund schemes are now mandated to perform stress tests under stress scenarios and report the outcomes publicly, increasing transparency of risk scenarios.
4. Flexibility in nomination: Investors can nominate as many as 10 nominees for each mutual fund holding. This is a big advantage for estate planning and family planning.
5. Specialised Investment Funds (SIFs): SIF is a new category of fund, and this permits investors with a minimum of INR 10 lakh investment to invest in long-short equity, derivatives, and multi-asset funds. ICICI Prudential, SBI MF, and other companies are launching SIFs through this model.
6. Rules for passive fund rebalancing: SEBI now requires that each passive investment deviation in actively managed funds must be rebalanced within 30 days. It's not limited to those funds related to asset allocation.
7. Scheme categorisation changes open for public comments: SEBI invites public comments by August 8, 2025, on suggestions to permit both value and contra fund categories in the same AMC (with an overlap of not more than 50%).
Also, suggestions can be given on opening up to additional permissible asset classes such as gold, silver, REITs, and InvITs for residual amounts under equity and debt schemes.
What Are The New Changes In Fund Categorisation?
SEBI has also introduced new changes regarding the categorisation of funds2:
Value And Contra Funds
Both value and contra funds can coexist under the same AMC only to the extent that their portfolios overlap by no more than 50%. This overlap is tracked at the point of NFO launching and six-monthly.
If the breach continues, the AMC has to rebalance within 30 days (with a 30-day extension option). A persistent breach invokes an exit option for investors without an exit load.
Equity Funds
Equity mutual funds must now invest at least 75% in equities. Previously, this limit was set at 65% and now, it's increased to 75%. The rest can be invested in debt, gold, silver, REITs, and InvITs. Many multi-cap funds already invest more than this in equities, and hence, it may not be a major concern for investors.
With multi-cap funds, the mutual fund houses are required to allocate 25% of their assets to each category – large cap, midcap, and smallcap companies.
Debt Schemes
Debt funds can invest residual amounts in InvITs and REITs. This is restricted to only extremely short-term schemes such as overnight or liquid funds. The word "Term" must be used instead of "Duration" in the case of debt schemes. For example, "Ultra Short to Short Term Fund (3-4?years)" instead of "Low Duration Fund." Scheme names must also clearly include license tenure.
Sectoral And Thematic Schemes
Sectoral debt schemes (such as infrastructure or PSU bonds) are now permitted, with a limit so that holdings in other sectoral or debt schemes are not more than 60%.
Hybrid & Arbitrage Schemes
Arbitrage funds are required to invest in repo/short-term government securities. Hybrid schemes can invest in REITs and InvITs in their residual component, except for arbitrage and dynamic allocation subtypes.
Extension Of Categories
SEBI has extended the category to allow up to six goal-based target date funds (e.g., retirement, housing, education) with lock-in periods of 3, 5, or 10 years, with changing equity to debt exposure over time.
Introduction Of Additional Schemes In A Similar Category
AMCs can introduce a second scheme in the same category if:
- The original scheme is more than five years old.
- It has an AUM of more than INR 50,000 crore.
- The old scheme should no longer accept new inflows, and the new one should reflect a similar strategy and nomenclature. The old investments with the old scheme, including SIPs, will be allowed.
Why It Matters For Retail Investors
SEBI’s proposed fund categorisation changes are more than just technical updates. They directly impact how retail investors choose, track, and manage their mutual fund portfolios. Here’s why it matters:
Clearer Scheme Labels = Simpler Choices
Most funds today are similar-sounding but have different approaches. This frequently leaves first-time investors perplexed or results in redundant investments. With SEBI closing the loopholes in scheme descriptions and curbing overlaps, particularly between value and contra schemes, investors can now understand the schemes better.
No More Duplicate Schemes
A second scheme within the same category is allowed only after the initial scheme reaches maturity (5+ years) and reaches INR 50,000 crore AUM. This ensures AMCs do not introduce lookalike schemes without compelling justification. This avoids unnecessary bloat and maintains a centered product selection. This reduces duplication within your investment portfolio.
Hybrid Options
By making room for REITs, InvITs, and even theme assets in residual parts of equity and hybrid schemes, retail investors now get to invest in diversified portfolios without directly buying complicated products. Solution-based funds with stated targets and lock-ins also simplify long-term planning. You can have greater exposure to various asset classes within a single fund.
Transparent Risk And Return Expectations
Substituting confusing expressions such as "low duration" with specific "term-based" names makes it easier to gauge how long your money is tied up and what type of volatility to anticipate. It also enables improved goal matching, allocating a 3-year fund, for instance, to a short-term objective.
What Investors Should Do After SEBI’s 2025 Update
SEBI's suggested changes are not only for fund houses. They directly impact how the fund houses manage your mutual fund portfolio.
Here's an easy, actionable to-do list to help you stay ahead:
Review Your Portfolio for Overlapping Schemes
Begin by reviewing your current mutual fund holdings. Have you invested in a value and contra funds from the same AMC? If so, look for duplication of strategies. With the new rules, such duplication can be rationalised or exit options can be initiated.
Check Fund Names Against Your Investment Horizon
SEBI’s plan to replace vague terms with clear “term based” labels (like "3–4 year term fund") makes it easier to align your funds with your goals. Match each fund’s investment horizon with your personal timeline. Exit schemes that no longer fit.
Explore Residual Allocation via Grip’s Offerings
With leftover chunks of funds now being eligible to encompass REITs, InvITs, and other alternative assets, you have an opportunity to diversify indirectly. Apps such as Grip Invest provide handpicked fixed income products like SDIs (Secured Debt Instruments) and leasing options that can be added to your core MF investments. Use these to offset volatility and introduce predictable income.
Share Your Feedback with SEBI by August 8
SEBI has also sought public comments on these proposals by August 8, 2025. Your voice matters as a retail investor. Log in to SEBI's portal to express concerns, particularly if you need transparency in categories or rebalancing norms.
Rebalance and Add Alternatives
There is no better time than now to rebalance your portfolio. It may be a good idea to cut exposure to duplicate or underperforming mutual funds. Add alternatives such as corporate bonds, Secured Debt Instruments (SDIs), and target date funds (as and when they roll out).
Conclusion
SEBI’s latest framework proposals mark a decisive step towards simplifying mutual fund investing for retail participants. From clearer scheme classifications to tighter controls on duplication and better alignment with investor goals, these reforms prioritise transparency, accountability, and ease of decision-making.
For investors, now is the perfect moment to take a fresh look at fund holdings, eliminate duplications, and get ready for a more organized investing framework. With residual allocations creating new diversification opportunities and fund names providing greater transparency, retail portfolios can now be made more effective without becoming more complicated.
FAQs On Mutual Fund Scheme Changes in India
1. What does “portfolio overlap” mean in mutual funds?
Portfolio overlap refers to the extent to which two or more mutual fund schemes hold the same securities. High overlap between schemes (e.g., a value fund and a contra fund from the same AMC) may lead to redundancy. SEBI’s new framework limits such overlap to ensure distinct strategies and better diversification.
2. Can mutual funds still offer both value and contra schemes?
Yes, but under certain conditions. An AMC can provide value and contra schemes only if the overlap between the portfolios remains less than 50%. This principle prevents every fund from playing the same role and duplicating each other. If the overlap surpasses the limit, the AMC has to rebalance or provide investors with an exit without an exit load.
3. How will renaming debt schemes benefit me as an investor?
SEBI proposes replacing vague terms like “duration” with clear “term based” labels (e.g., “Short Term (1–3 years)”). This helps investors better understand a fund’s time horizon and risk level. It makes selecting a scheme aligned with your investment goals much easier and reduces confusion.
References
1. Reuters, accessed from: https://www.reuters.com/world/india/indian-fund-managers-line-up-long-short-equity-funds-wealthy-2025-07-16/
2. Priority Courier, accessed from: https://prioritycourier.in/mutual-fund-update-major-regulatory-changes-to-reshape-investments/
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