SEBI Updates Mutual Fund Categorisation Framework

India’s capital markets regulator, the Securities and Exchange Board of India (SEBI), has updated the framework governing mutual fund scheme categorisation. The circular issued on February 26 supersedes earlier provisions released on October 6, 2025, and November 6, 2025.

The revised structure aims to align scheme categories with evolving investment strategies while maintaining well-defined boundaries. These changes apply to all mutual funds, asset management companies (AMCs), trustee companies and the Association of Mutual Funds in India (AMFI).

Revised Scheme Categories and Definitions

SEBI has retained the broad classification of mutual fund schemes into 5 overarching groups:

• Equity schemes
• Debt schemes
• Hybrid schemes
• Life cycle funds
• Other schemes, including Fund of Funds and passive funds such as index funds and ETFs

The regulator has also clarified the definition of the “residual portion”, which refers to the part of a scheme’s corpus not invested in its core asset classes. The updated framework seeks to ensure consistent application of these definitions across the industry.

Minimum Allocation Norms for Equity Schemes

The revised circular introduces specific minimum investment thresholds within equity schemes:

• Multi Cap Fund:
  • Minimum 75% investment in equity and equity-related instruments
  • At least 25% each in large-cap, mid-cap and small-cap stocks
• Large Cap Fund:
  • Minimum 80% exposure to large-cap companies
• Large and Mid Cap Fund:
  • At least 35% each in large-cap and mid-cap stocks

These norms are intended to create clearer portfolio distinctions and reduce ambiguity across categories.

Enhancing Clarity, Consistency and Comparability

The updated categorisation framework has been structured to support the evolving mutual fund ecosystem while enhancing transparency for investors. Standardised scheme descriptions are intended to improve comparability and make product positioning clearer.

SEBI’s revised approach seeks to better align investment structures with actual fund strategies. This is expected to reduce category overlap and reinforce overall classification integrity.

Additional Structural Changes in the Mutual Fund Landscape

Alongside category clarifications, SEBI’s wider restructuring includes:

• Introduction of life cycle funds and new scheme types
• Stricter naming norms to improve transparency
• Restrictions on portfolio overlap among sectoral and thematic schemes
• Ensuring schemes remain “true to label” with distinct investment mandates

Mutual funds must comply with the new categorisation rules within 6 months of the circular’s issuance.

Read More: Mutual Funds Industry Records Over 7 Million Folios in January.

Conclusion

SEBI’s revised categorisation framework represents a meaningful move towards clearer mutual fund structures and improved investor comprehension. The introduction of defined thresholds and standardised scheme descriptions is intended to minimise overlap across categories.

This alignment seeks to ensure greater consistency in product positioning throughout the industry. With implementation timelines specified, the updated guidelines are expected to enhance transparency and uniformity in the mutual fund landscape.

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