₹75 Trillion Under the Scanner: SEBI’s MF Overhaul May Redraw Portfolios

Image Source: Business Standard

India's securities watchdog SEBI has invited public comments on a far-reaching revamp of mutual fund scheme categorization to curtail portfolio overlap and increase investor transparency. The initiative is launched at a time when the Rs 75-trillion MF industry is grappling with rising complexity and duplication of products.

Major Points of the Consultation Paper

- Mutual funds can now launch both Value and Contra plans, subject to portfolio overlap being below 50 percent.
- Overlap monitoring will be conducted on New Fund Offer (NFO) onboarding and bi-half-yearly on a month-end portfolio basis.
- In case of overlap over limits, AMCs will rebalance within 30 business days, extendable by further 30 days with Investment Committee approval.
- Persistent deviation will trigger an exit option for investors without any exit load.

Debt Scheme Rebranding and Investment Flexibility

- SEBI recommends replacing 'Duration' with 'Term' to make it more clear.
- 'Low Duration Fund' may be re-named as 'Ultra Short to Short Term Fund'.
- The names of schemes should reflect investment horizons, i.e., Overnight Scheme (1 Day), Medium Term Scheme (3–4 Years).
- Other portions of debt and equity schemes could be invested in gold, silver, REITs, and InvITs, subject to regulatory limits.

New Categories and Structural Adjustments

- Sectoral debt strategies allowed with a 60 percent overlap limit, depending on investment-grade paper availability.
- Repos and short-term government securities arbitrage are financed only.
- Hybrid and solution models can diversify into REITs and InvITs, with lifecycle-based fund-of-funds being initiated for housing or wedding purposes.

Public comment is invited through August 8, 2025.

Sources: Financial Express, Business Standard, CNBC TV18, Livemint, Fortune India