"SEBI’s Latest Mutual Fund Reform Is a Much-Needed Course Correction" - by Vanita Ojha (Amritaya Investments)

Udaipur, Feb 27, 2026: Every few years, the mutual fund industry needs a reset. Not because it is broken — but because it grows faster than discipline.

SEBI’s latest circular on mutual fund categorization feels like one of those resets. And as someone working closely with investors every day, I believe it was necessary.

Over the last several years, the number of mutual fund schemes kept increasing. New themes. New sectors. New variations. On the surface, it looked like more choice for investors. But when we actually studied portfolios, many schemes held very similar stocks, different names similar holdings.

Investors often felt diversified because they owned multiple schemes. But in reality, the overlap was sometimes significant. That is not healthy diversification — that is repetition.

The new rule capping portfolio overlap is, in my opinion, the most important change. If two schemes claim to follow different strategies, they should genuinely be different. This reform forces fund houses to bring clarity to what they are offering.

That is good for investors. And it is good for advisors who believe in building portfolios thoughtfully.

I also appreciate the discipline introduced in scheme naming. Mutual funds are not products that should be sold on excitement or exaggerated return expectations. They are tools for long-term wealth creation. Keeping scheme names aligned strictly with their category brings seriousness back into the conversation.

Another positive development is the introduction of Life Cycle Funds. In India, we still struggle with goal-based investing. Many investors chase performance instead of planning for milestones. A structured fund that automatically reduces risk as the target date approaches can help bring more stability and long-term thinking into portfolios.

Will these changes require adjustment from fund houses? Certainly. Will distributors need to study portfolios more closely? Absolutely. But that is how industries mature.

For investors in cities like Udaipur, where mutual fund participation is steadily rising, clarity matters more than complexity. When products are simpler and more transparent, trust grows. And trust is the backbone of financial advisory.

In brief, these are the 20 key changes in SEBI's new MF Scheme Categorisation circular:

1. AMCs can now launch both Value and Contra Funds, with portfolio overlap capped at 50%. Earlier, only one was allowed.

2. New Sectoral Debt Funds introduced (Financial Services, Energy, Infrastructure, Housing, Real Estate) min 80% in AA+ & above.

3. New Life Cycle Funds category, six maturities (30, 25, 20, 15, 10, 5 years) with fixed glide path reducing equity over time.

4. Sectoral/Thematic funds can be launched only from the list notified by AMFI in consultation with SEBI (updated half-yearly)

5. Balanced Hybrid Funds allowed with 40-60% equity allocation. Earlier, AMCs had to choose between Balanced or Aggressive Hybrid.

6. Solution-Oriented Schemes (Retirement & Children’s Plans) discontinued, fresh subscriptions stopped and schemes to be merged with similar categories.

7. Mandatory monthly disclosure of category-wise portfolio overlap (equity vs equity, debt vs debt, hybrid vs hybrid) on AMC websites.

8. Equity schemes may deploy residual allocation in money market/liquid instruments, gold/silver instruments, and InvITs.

9. Sectoral/Thematic schemes must limit portfolio overlap to 50% with other equity schemes (except large-cap). Calculated quarterly as average of daily overlap.

10. Existing Sectoral/Thematic schemes get 3 years to comply; non-compliant schemes must merge.

11. Arbitrage Funds’ debt exposure restricted to government securities (<1-year maturity) and repo in government bonds only.

12. Low Duration Fund renamed to Ultra Short to Short Term Fund.

13. Long Duration Fund renamed to Long Term Fund.

14. Dynamic Bond Fund renamed to Dynamic Term Fund.

15. Balanced Advantage Fund renamed to Dynamic Asset Allocation Fund.

16. Credit Risk Funds must invest minimum 65% in AA and below-rated bonds (earlier: below AA+).

17. Floating Rate Funds may invest in fixed-rate instruments synthetically converted to floating exposure via swaps/derivatives.

18. Hybrid schemes may invest residual allocation in InvITs (except Arbitrage), ETCDs, Gold ETFs, and Silver ETFs.

19. Equity Savings Funds must maintain net equity exposure between 15-40%.

20. Foreign securities will not be treated as a separate asset class.

To me, this circular is not restrictive. It is responsible. It nudges the industry toward honesty in positioning, discipline in portfolio construction, and seriousness in long-term investing.

And that is a direction I am happy to support.

Analysis by: Vanita Ojha (Amritaya Investments), Udaipur. Vanita is a Mutual Fund distributor in Udaipur. She has over 21 years in the industry, managing Rs 150+ Crore portfolio in retail assets and overseeing prominent ultra HNI family offices, delivering disciplined, long-term wealth solutions