Sebi widens scope for equity mutual funds, allows gold, silver exposure

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 introduced sweeping changes to mutual fund (MF) scheme categorisation, allowing active equity schemes to invest in gold and silver while opening up new fund categories and discontinuing solution-oriented schemes.

 

Under the revised framework, active equity schemes can now include gold and silver as part of the non-equity portion of their portfolios. Earlier, equity schemes were permitted to invest 20–35 per cent of their corpus in non-equity instruments such as debt, Real Estate Investment Trusts (Reits) and Infrastructure Investment Trusts (InvITs). Gold and silver can now be included within this allocation, giving fund managers greater flexibility during periods of market volatility.

 

 

Introduction of life cycle funds

 

A key change is the introduction of “Life Cycle Funds”, which will replace retirement and children’s solution-oriented schemes. These goal-based funds will have a pre-determined maturity and invest across asset classes including equity, debt, Reits, InvITs, exchange-traded commodity derivatives (ETCDs), and gold and silver exchange traded funds (ETFs).

 

The tenure of life cycle funds can range from five to 30 years. They will follow a pre-determined glide path, gradually reducing equity exposure over time. While investors can redeem units during the tenure, higher exit loads — up to 3 per cent in the first year — will apply to encourage long-term discipline.

 

Expanded categories, tighter rules

 

Sebi has increased the number of categories in the active equity and hybrid space from 11 to 12. Fund houses can now offer both value and contra funds — previously restricted to one — and both balanced and aggressive hybrid schemes.

 

A new sectoral debt fund category has also been introduced. These funds must invest more than 80 per cent of their assets in debt instruments of specific sectors such as financial services, energy, infrastructure, housing and real estate, subject to adequate market liquidity.

 

To address concerns over proliferation of sectoral and thematic funds, Sebi has capped portfolio overlap between such schemes and other equity funds (except large-cap funds) at 50 per cent. Existing schemes have been given a three-year glide path to comply, failing which they must be merged.

 

Sebi had first outlined the recategorisation proposals in a consultation paper issued in July 2025. While most proposals have been adopted, the suggestion to allow fund houses managing schemes above Rs 50,000 crore to launch another scheme in the same category has not been included in the final framework.

 

The regulator said the changes are aimed at enhancing investor choice while maintaining clarity and discipline in scheme categorisation.