In a consultation paper, SEBI flagged significant duplication in some schemes’ portfolios and recommended placing clear limits to prevent similar fund offerings. The regulator proposed allowing both Value and Contra schemes, with no more than 50% portfolio overlap at any time.
This overlap cap must be monitored at the time of New Fund Offer (NFO) deployment and reviewed semi-annually using month-end portfolios. If the overlap exceeds the threshold, the asset management company (AMC) will need to rebalance holdings within 30 business days, extendable by another 30 days with Investment Committee approval.
“If the deviation persists beyond this period, investors of both schemes shall be given an exit option without any exit load,” SEBI said.
Under the proposal, mutual funds could invest residual portions of equity schemes in instruments including debt, gold, silver, REITs, and InvITs. Similarly, debt category schemes may also allocate a portion of assets to REITs and InvITs, barring ultra-short and money market funds.
The regulator suggested renaming the term “Duration” to “Term” across debt schemes for improved investor understanding. It proposed that “Low Duration Fund” be rebranded as “Ultra Short to Short Term Fund”, with scheme names indicating the investment horizon — such as “Overnight Scheme (1 Day)” or “Medium Term Scheme (3–4 Years)”.
SEBI also recommended allowing sectoral debt schemes with a portfolio overlap cap of 60% compared to other debt or sectoral offerings. These would be contingent on sufficient availability of investment-grade instruments.
For arbitrage funds, exposure to debt instruments would be restricted to short-term government securities and repos backed by them. Equity savings schemes would need to maintain net equity and arbitrage exposure between 15% and 40%.
SEBI further proposed permitting hybrid schemes — excluding Dynamic Asset Allocation and Arbitrage Funds — to invest residual assets in REITs and InvITs.
The proposals also include new solution-oriented schemes, such as life-cycle-based fund of funds with target dates and tailored lock-in periods (3, 5, or 10 years) for specific financial goals like housing or marriage.
In a bid to simplify fund naming conventions, SEBI suggested replacing the word “fund” with “scheme” — for instance, renaming “Large Cap Fund” as “Large Cap Scheme”.
Mutual fund offerings will continue to be grouped under five broad categories: equity-oriented, debt-oriented, hybrid, solution-oriented, and others.
SEBI has invited public feedback on the proposals until August 8.
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