๐๐๐๐ ๐ซ๐๐๐๐ญ๐๐ ๐จ๐ซ๐ข๐ณ๐๐ฌ ๐๐ฎ๐ญ๐ฎ๐๐ฅ ๐ ๐ฎ๐ง๐ ๐ฌ๐๐ก๐๐ฆ๐๐ฌ
Securities and Exchange Board of India (SEBI)‘s Master Circular for Mutual Funds dated June 27, 2024 consolidated all prior directions, including the 2017 categorisation framework under Clause 2.6. On February 26, 2026, Securities and Exchange Board of India (SEBI) has now expressly superseded Clause 2.6 and replaced the categorisation architecture through a new circular. Below we have described some notables changes:
(๐) ๐๐ก๐๐ง ๐ฏ๐ฌ ๐๐จ๐ฐ Under the earlier framework, schemes were broadly grouped into (1) Equity, (2) Debt, (3) Hybrid, (4) Solution Oriented and (5) Other Schemes (FoFs, Index Funds/ETFs). The emphasis was on minimum asset allocation thresholds and uniform descriptions.
The 2026 circular now classifies schemes under (1) Equity, (2) Debt, (3) Hybrid, (4) Life Cycle Funds and (5) Other Schemes (including Fund of Funds and Passive Schemes). The express recognition of Life Cycle Funds as a separate bucket signals regulatory comfort with age- or goal-linked allocation strategies. While the broad architecture appears similar, the internal discipline within categories has materially evolved.
(๐) ๐๐จ๐ซ๐ญ๐๐จ๐ฅ๐ข๐จ ๐๐ฏ๐๐ซ๐ฅ๐๐ฉ The most consequential shift lies in portfolio overlap restrictions. Sectoral and thematic equity schemes cannot have more than 50% portfolio overlap with other equity schemes (other than large cap schemes). Existing schemes are given a three-year glide path. This effectively curbs thematic duplication and โshadow strategiesโ masquerading as differentiated products.
Value and Contra funds may now co-exist, but portfolio overlap between the two is capped at 50%. In substance, labels must now reflect genuine strategy divergence.
(๐) ๐๐๐๐ญ ๐๐๐ก๐๐ฆ๐๐ฌ Debt categories continue to be duration-based, but Macaulay duration is explicitly anchored at the portfolio level. Corporate Bond Funds, Credit Risk Funds and Sectoral Debt Funds now carry sharper rating-linked minimum allocation requirements. Overnight and Liquid Funds carry explicit deployment clarifications.
(๐) ๐๐จ๐ง๐ญ๐ซ๐จ๐ฅ๐ฅ๐๐ ๐๐ก๐๐ฆ๐๐ญ๐ข๐ ๐๐ฑ๐ฉ๐๐ง๐ฌ๐ข๐จ๐ง Sectoral and thematic funds must align with sectors/themes published and periodically updated by Association of Mutual Funds in India (AMFI) in consultation with Securities and Exchange Board of India (SEBI). The era of creative theme manufacturing appears to be narrowing.
๐๐๐ ๐ฎ๐ฅ๐๐ญ๐จ๐ซ๐ฒ ๐๐ข๐ ๐ง๐๐ฅ Securities and Exchange Board of India (SEBI) is moving from descriptive categorisation to data-driven supervision. Portfolio identity, overlap metrics and asset allocation fidelity will increasingly define compliance risk. Trustees and AMCs will need to institutionalise quantitative monitoring.
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