SEBI Proposes Mutual Fund Scheme Revamp to Limit Overlap

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  • Last Updated on 21 July, 2025

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SEBI mutual fund scheme categorisation

SEBI Draft Circular; Dated: 18.07.2025

To enhance transparency and streamline offerings, the Securities and Exchange Board of India (SEBI) has proposed a comprehensive review of the categorisation and rationalisation of mutual fund (MF) schemes.

1. Objective of the Proposal

The key objectives of SEBI’s proposal are to:

  • Improve clarity for investors regarding scheme offerings
  • Facilitate the introduction of new mutual fund schemes
  • Address the growing concern of portfolio overlap among similar schemes

2. Concern Over Portfolio Overlap

SEBI has observed significant overlap in the portfolios of multiple mutual fund schemes, which undermines the distinctiveness of investment strategies and creates confusion for investors. Such overlap can dilute the intended risk-return profile of schemes and reduce the effectiveness of diversification.

3. Key Proposal – Value and Contra Funds

As part of the review, SEBI has proposed allowing mutual funds to offer both value and contra funds, subject to a critical condition:

  • Portfolio Overlap Cap – No more than 50% overlap between the portfolios of value and contra schemes at any given point in time.

This restriction aims to preserve the uniqueness of each fund category and prevent redundancy in fund strategies.

4. Public Comments Invited

SEBI has invited public comments on the proposed changes. Last date for submission – 08th August 2025

5. Way Forward

This proposal forms part of SEBI’s ongoing efforts to ensure investor protection, scheme differentiation, and better product regulation in the mutual fund industry. If implemented, it may lead to more transparent product offerings and a more disciplined fund management approach.

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Author: Taxmann

Taxmann Publications has a dedicated in-house Research & Editorial Team. This team consists of a team of Chartered Accountants, Company Secretaries, and Lawyers. This team works under the guidance and supervision of editor-in-chief Mr Rakesh Bhargava.

The Research and Editorial Team is responsible for developing reliable and accurate content for the readers. The team follows the six-sigma approach to achieve the benchmark of zero error in its publications and research platforms. The team ensures that the following publication guidelines are thoroughly followed while developing the content:

  • The statutory material is obtained only from the authorized and reliable sources
  • All the latest developments in the judicial and legislative fields are covered
  • Prepare the analytical write-ups on current, controversial, and important issues to help the readers to understand the concept and its implications
  • Every content published by Taxmann is complete, accurate and lucid
  • All evidence-based statements are supported with proper reference to Section, Circular No., Notification No. or citations
  • The golden rules of grammar, style and consistency are thoroughly followed
  • Font and size that's easy to read and remain consistent across all imprint and digital publications are applied