Market regulator Sebi may soon revise MF categorisation framework

Sebi is set to roll out its first major review of mutual fund categorisation since 2017, aiming to curb portfolio overlap and bring long-term stability to the ₹80-trillion industry

The Securities and Exchange Board of India (Sebi) could soon tweak the framework on mutual fund (MF) categorisation, marking the first comprehensive review of norms for the ₹80-trillion MF industry since their introduction in 2017.

 

“We are trying to imbibe suggestions from the mutual fund industry and soon you will hear from us on what we have done on categorisation. Since we have recently introduced a major reform, we don’t want to overload the industry at this stage,” said Manoj Kumar, executive director at Sebi, speaking at the annual convention of the Association of Investment Bankers of India (AIBI).

 

He added that the framework is ready and will be rolled out shortly.

 

The market regulator’s renewed focus on categorisation follows its recent intervention in the new fund offer (NFO) of a micro-cap fund, amid concerns over portfolio overlap. Market participants believe the forthcoming framework could help address such overlap-related issues.

 

In July 2025, Sebi had floated a consultation paper proposing an overhaul of the rules governing how mutual fund houses design and offer schemes. The move was aimed at curbing the proliferation of near-identical schemes across categories.

 

“The challenge is how to categorise small-cap, mid-cap and large-cap stocks in a manner that remains feasible over the long term. Some have suggested introducing a micro-cap category, but you would have seen that we recently had to intervene in one such case,” Kumar said. He added that while the final framework may not find immediate acceptance among all industry players, it is expected to bring long-term stability.

 

To discourage redundant launches, Sebi has proposed a 50 per cent cap on portfolio overlap between sectoral or thematic equity schemes and other equity schemes, excluding large-cap funds.

 

Separately, the regulator has also proposed allowing fund houses to launch retirement fund-of-funds (FoFs) with a target maturity strategy, a move aimed at attracting long-term, pension-style capital. In addition, asset managers overseeing schemes with assets exceeding ₹50,000 crore may be permitted to launch additional schemes within the same category to address liquidity constraints, particularly in the small-cap and mid-cap segments.