SEBI’s New Mutual Fund Rule May Change How You Invest

SEBI, India’s market regulator, has proposed a major change to how mutual fund companies operate. At present, a mutual fund house is allowed to offer only one scheme per category, whether that’s large-cap, mid-cap, or hybrid funds. But SEBI now wants to allow a second fund in the same category, under specific conditions. This could substantially affect where your money goes next. 

Why Is SEBI Making This Change?

Some mutual funds have grown too big, making it difficult for fund managers to stay true to their investment style. For instance, a small-cap fund managing massive inflows may be forced to invest in large-cap stocks just to stay liquid.

SEBI believes that allowing a second scheme will give fund houses more flexibility while keeping fund strategies focused and efficient.

Who Can Launch a Second Mutual Fund Scheme?

Only fund houses that meet both of these criteria can launch a new scheme:

• The existing scheme is more than 5 years old
• It has an Assets Under Management (AUM) of over ₹50,000 crore

This means only a few well-established schemes, like Parag Parikh Flexi Cap, currently qualify.

What Will Happen to the Existing Mutual Fund?

If a new scheme is launched:

• The old fund will stop accepting new lump-sum investments
• Existing SIPs (Systematic Investment Plans) will continue
• A new Scheme Information Document (SID) will be issued
• The new fund must have a similar strategy and asset mix
• It must have a different name, such as “Mid Cap Fund Series 2”
• The Total Expense Ratio (TER) cannot be higher than that of the original scheme

What Are Investors Worried About?

Some news reports suggest that if too many investors switch to the new scheme, the original fund may face rising redemptions and lower returns. This could hurt long-term investors who choose to stay.

How Many Funds Can a Company Offer?

SEBI will allow only two schemes per category. If needed, the fund house can merge the two schemes later.

Read more: EPFO Membership on the Rise: Govt Highlights Growing Job Opportunities.

Conclusion

SEBI’s proposal aims to improve fund performance by managing oversized schemes. But for investors, it may mean changes to existing investments. If your current fund is over five years old and very large, it might stop taking new money. As new schemes come up, don’t forget to evaluate their strategy, track record, and potential risks before making a switch.

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. This does not constitute a personal recommendation/investment advice. It does not aim to influence any individual or entity to make investment decisions. Recipients should conduct their own research and assessments to form an independent opinion about investment decisions.

Investments in the securities market are subject to market risks. Read all the related documents carefully before investing.