Mutual funds required to reveal portfolio overlap levels, SEBI says

Mutual funds required to reveal portfolio overlap levels, SEBI says

SEBI Proposes Portfolio Overlap Disclosure and Categorization Reforms for Mutual Funds

The Securities and Exchange Board of India (SEBI) has introduced a series of regulatory changes aimed at addressing portfolio overlaps among mutual fund schemes and enhancing transparency for investors. The proposals, outlined in a draft circular, seek to standardize scheme naming, impose overlap limits, and introduce operational clarity for asset management companies (AMCs).

A key focus of the reforms is curbing excessive portfolio overlaps, particularly in equity schemes. SEBI has proposed capping overlaps at 50% for value and contra funds, as well as thematic and sectoral equity schemes, to ensure distinct investment strategies and reduce redundancy. This measure is intended to help investors differentiate between funds and avoid confusion caused by similar portfolio compositions. Compliance will be monitored at the time of new fund offerings (NFOs) and semi-annually using month-end portfolio data.

The regulator also emphasized standardizing scheme nomenclature to align with investment objectives. For example, debt schemes like "Low Duration Fund" may be renamed "Ultra Short to Short Term Fund," while equity schemes such as "Large Cap Fund" would be labeled "Large Cap Scheme" to reflect their structure more accurately. Additionally, SEBI proposed allowing AMCs with strong track records (minimum five years and ₹50,000 crore assets under management) to launch a second scheme in the same category, provided it has a separate fund manager and the original scheme stops accepting new subscriptions.

For solution-oriented schemes like retirement and children's funds, SEBI proposed mandatory lock-in periods for new investments, while existing investors would remain unaffected. The regulator also suggested permitting investments in Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (InvITs) within certain categories, subject to regulatory limits.

The draft circular invites public comments until August 8, 2025. If implemented, these changes aim to balance innovation with investor protection, ensuring clearer product differentiation and improved market discipline. Analysts note that while the overlap restrictions may increase administrative burdens for AMCs, they could enhance transparency and long-term investor confidence.

(https://m.economictimes.com/mf/mf-news/sebi-plans-to-change-mf-norms-to-tackle-overlaps-ensure-names-true-to-label/articleshow/122776792.cms): SEBI's draft circular emphasizes portfolio overlap caps and lock-in requirements for solution-oriented schemes.
(https://www.finseclaw.com/article/sebis-draft-circular-on-mutual-fund-categorization-balancing-clarity-innovation-and-oversight): Equity and debt scheme reforms include 50% overlap limits and naming standardization.
(https://www.taxmann.com/post/blog/sebi-proposes-mutual-fund-scheme-revamp-to-limit-overlap): Public comments are invited until August 8, 2025, with compliance timelines for existing schemes.
(https://www.finseclaw.com/article/sebis-draft-circular-on-mutual-fund-categorization-balancing-clarity-innovation-and-oversight): Standardized naming and operational flexibility aim to improve investor clarity.