Athira Sethu
Kochi, 27 Feb 2026
The mutual fund sector in India is expected to witness significant developments in the coming months following the introduction of new norms by the Securities and Exchange Board of India (SEBI). The new norms on mutual fund scheme classification are expected to ensure that mutual fund schemes are more transparent and easier to understand.
The mutual fund industry had become overcrowded and confusing over the years. There were mutual fund schemes with similar names but different investment approaches. There were also mutual fund schemes across categories that invested in similar stocks or assets. This made it confusing for investors to understand where their investments were actually going.
The new SEBI guidelines are based on transparency and “true to label” positioning. This implies that a mutual fund scheme has to adhere to its investment approach and asset allocation as per its category. For instance, a large-cap mutual fund scheme has to invest largely in large-cap companies. A value mutual fund scheme has to adhere to a value investment approach. The new guidelines also specify the maximum amount that can be invested in equity, debt, hybrid, or solution-oriented mutual fund schemes.
For investors, this means greater clarity and integrity. They can now easily compare similar kinds of funds. Instead of having to choose between several confusing alternatives, investors can now look at well-defined groups and make informed choices based on their own objectives and risk profiles.
The new rules also eliminate duplication and unwanted concentration. Previously, investors may have inadvertently held several schemes that invested in similar portfolios. With tighter definitions and asset allocation constraints, each scheme is likely to have a clearer defined role in a portfolio. This should help enhance diversification and minimize risks.
It is recommended that investors examine their current portfolios in the light of the new rules. It may be prudent to avoid holding too many similar schemes and concentrate on those that have distinctly different approaches, such as large-cap versus mid-cap or value versus contra funds.
For asset management companies, this implies sharper positioning of products and even a reshuffle of portfolios in the short term. Some churning is expected as fund houses rebalance their portfolios to conform to the new guidelines.
