Big Update For Mutual Fund Investors, SEBI’s New Circular Brings Fresh Rules That Could Directly Impact Your Returns
SEBI has issued a new circular introducing major changes to mutual fund categories, investment limits and portfolio rules. Equity, debt and hybrid schemes must now follow stricter allocation norms. The reforms aim to improve transparency and reduce overlap, but they could also influence fund returns and investor strategy.
SEBI has issued a new circular introducing major changes to mutual fund categories. |
Mumbai: If you invest in mutual funds, this is important for you. On the morning of 26 February 2026, the Securities and Exchange Board of India (SEBI) issued a new circular introducing major changes in mutual fund categories, structure, naming rules and investment limits.
The aim is to improve transparency and make schemes easier to understand. However, these changes may also affect returns and investment strategy.
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Clear Categories for All Schemes
Under the new rules, mutual fund schemes will now be clearly divided into five broad categories:
- Equity
- Debt
- Hybrid
- Life Cycle Funds
- Other Schemes
SEBI wants all schemes to remain “true to label.” This means if a fund is called Large Cap or Multi Cap, it must strictly follow that category’s investment rules.
New Rules for Equity Funds
SEBI has fixed minimum investment limits for equity categories:
Multi Cap Funds must invest at least 25% each in Large, Mid and Small Cap stocks.
Large Cap Funds must invest at least 80% in large-cap stocks.
Similar minimum allocation rules apply to Mid Cap, Small Cap and Flexi Cap funds.
These rules ensure that funds follow their stated strategy properly.
Impact on Sectoral & Thematic Funds
SEBI has introduced limits on portfolio overlap. This means two schemes from the same fund house cannot hold too many identical stocks.
The goal is to reduce duplication and provide real diversification to investors.
Changes in Debt and Hybrid Funds
Debt funds are now clearly divided into categories like Overnight, Liquid, Short Term, Corporate Bond and Gilt funds. Each category has specific duration and investment rules.
Hybrid funds such as Conservative Hybrid, Balanced Hybrid and Aggressive Hybrid must clearly define their equity-debt ratio.
What Are Life Cycle Funds?
Life Cycle Funds are new goal-based funds where the equity and debt mix changes over time. These funds may have durations from 5 to 30 years.
Other Important Changes
SEBI has decided to discontinue the “Solution Oriented Schemes” category. Existing schemes will be merged into similar categories.
Asset Management Companies (AMCs) have been given six months to comply with the new rules.
What It Means for Investors?
Investors will find it easier to compare schemes. Risk levels will be clearer. Portfolio duplication will reduce. While returns may change due to stricter limits, transparency and investor protection will improve.
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