Sebi broadens MF categories, allows gold, silver exposure in equity schemes

Regulator introduces life cycle funds, expands equity categories and phases out solution-oriented schemes, while permitting equity funds to hold gold and silver

The Securities and Exchange Board of India (Sebi) has opened new scheme options for mutual funds (MFs), while allowing active equity schemes to invest in gold and silver. The changes in scheme categorisation also include discontinuation of solution-oriented schemes, which include retirement and children’s funds.

 

The option to invest in gold and silver will provide fund managers flexibility to navigate market volatility. Equity schemes were so far allowed to invest up to 20-35 per cent of their corpus in a mix of non-equity instruments like debt, Real Estate Investment Trusts (REITs), and Infrastructure Investment Trusts (InvITs). Gold and silver can be a part of this mix now.

 

The other major change is the introduction of Life Cycle Funds. These goal-focused schemes will come with a pre-determined maturity and will invest across asset classes — equity, debt, Reits and InvITs, Exchange-Traded Commodity Derivatives and gold and silver exchange traded funds. The tenure of the life cycle funds can range from five to 30 years, with pre-determined glide path to reduce equity allocation with time. While the schemes will remain open to redemptions throughout the cycle, they will come with higher exit loads (3 per cent in the first year) to “inculcate financial discipline”.

 

The number of categories in the active equity and hybrid space has been expanded from 11 to 12, with Sebi allowing fund houses to offer both value and contra schemes (previously limited to one), and both balanced and aggressive hybrid funds. A new sectoral debt fund category, investing over 80 per cent in debt instruments of specific sectors, has also been introduced. Sebi said MFs can choose to launch schemes focused on financial services, energy, infrastructure, housing and real estate, provided there is liquidity.

 

The revised categorisation also addresses the issue of proliferation of sectoral and thematic schemes. Under the new framework, MFs will have to ensure that portfolio overlap between sectoral or thematic offerings and other equity schemes (except largecap funds) does not exceed 50 per cent. The regulator has provided existing schemes a three-year glide path to align with the overlap limits, failing which they will have to be merged.

 

Sebi had first made re-categorisation plans public in July 2025 through a consultation paper. While most of the proposals have made it to the final circular, the plan to allow fund houses with large schemes (over Rs 50,000 crore) to launch another fund in the same category has been kept out of the final framework.