SEBI Proposes Mutual Fund Scheme Revamp to Limit Overlap

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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