India's mutual fund landscape is set for a structural reset after the
Securities and Exchange Board of India (Sebi) issued final guidelines on fund scheme categorisation, aimed at reducing overlaps and sharpening product differentiation.
The changes, finalised after a consultation process last year, introduce Life Cycle Funds, rationalise sectoral exposures, allow value and contra funds to co-exist, and expand investment flexibility in select categories.
On the bourses, however, shares of asset management companies saw selling pressure as investors assessed the impact of Sebi's new guidelines.
UTI Asset Management share price declined 3.5 per cent (₹1,006.15) intraday, while HDFC Asset Management Company (₹2,700.55) and Nippon Life India Asset Management (₹927.5) share prices fell 1.9 per cent each.
ICICI Prudential AMC share price dropped 1.3 per cent (₹3,072), and Canara Robeco AMC share price slipped 0.7 per cent.
By comparison, the BSE Sensex index was down 0.7 per cent (around 600 points) lower at 11:40 AM.
What are the new MF categories approved by Sebi?
On Thursday, the stock market regulator said it will discontinue the "solution-oriented" category and replace it with a new structure centred on Life Cycle Funds, which are open-ended target-date schemes with predefined asset allocation glide paths.
Under the framework, Life Cycle Funds can be launched with maturities ranging from five to 30 years in five-year increments. Fund houses are allowed to have up to six such schemes open for subscription at any time.
Life Cycle Funds can invest across equity, debt, gold and silver instruments, InvITs and exchange-traded commodity derivatives, with graded exit loads of 3 per cent, 2 per cent, and 1 per cent in the first three years, reinforcing investors' long-term orientation.
Radhika Gupta, MD & CEO of Edelweiss Asset Management, described the move as transformative for goal-based investing.
"Over the last few years, Sebi has meaningfully expanded what asset managers can do. Debt passive regulations, Specialised Investment Funds, and now Life Cycle Funds are good examples. These aren't cosmetic changes, rather they widen the solution set," she said in a post on social media platform 'X'.
Life Cycle Funds, she added, align portfolios to an investor's time horizon, steadily transitioning from equity to lower-risk assets as financial goals draw closer. This reduces the need for frequent asset allocation decisions while
maintaining tax efficiency.
"Simple in concept. Powerful in outcome. And very practical for long-term financial planning," Gupta noted.
Another key change introduced by Sebi aims to address the overlap in sectoral and thematic funds.
As per the new guidelines on MF categorisation, which are effective immediately, Sebi mandated that such schemes should limit portfolio similarity (up to 50 per cent) with other equity schemes, with a phased three-year realignment period.
New sectoral launches, the Sebi circular said, would be restricted to sectors/themes prescribed and updated by Amfi in consultation with Sebi on a half-yearly basis.
Meanwhile, the regulator also reversed an earlier constraint by allowing fund houses to offer both value and contra strategies, provided portfolio overlap remains within prescribed thresholds. This gives AMCs greater room to cater to distinct investment philosophies under the same equity umbrella, said analysts at JM Financial Institutional Securities.
Exposure to gold, silver allowed in equity schemes
In addition, equity schemes will now be permitted to invest in gold and silver instruments -- a move that broadens diversification options.
What do the new Sebi MF categorisation rules mean for Asset Management Companies?
According to JM Financial, the overhaul is designed to simplify scheme selection for investors while nudging asset managers toward clearer portfolio positioning.
For AMCs, the brokerage said the implications are two-fold. Operationally, fund houses will need to rejig portfolios and possibly merge certain legacy schemes.
"Strategically, however, the expanded toolkit allows greater product innovation and more customised investor solutions," JM Financial said.
Further, for arbitrage funds, the rules on non-government debt exposure have been tightened, which could marginally influence returns, though it is unlikely to materially affect asset management companies' profitability.
"We expect larger asset managers to manage this transition without material financial disruption and we anticipate no material financial impact on HDFC AMC, NAM and UTI AMC," JM Financial said.
Overall, analysts said while near-term adjustments may create transitional complexity, the reforms are long-term positive and may deepen the maturity of India's mutual fund ecosystem.
ALSO READ: JM Financial initiates 'Buy' on Physicswallah, sees 23% upside ============ Disclaimer: The views and investment tips expressed by the brokerage in this article are their own and not those of the website or its management. Business Standard advises users to check with certified experts before taking any investment decisions. 
 "Explained: What Sebi's new MF categorisation means for AMCs and investors?")
