SEBI allows mutual funds to offer value, contra funds

SEBI allows mutual funds to offer value, contra funds

SEBI Proposes Flexibility for Mutual Funds to Offer Value and Contra Funds

India’s markets regulator, the Securities and Exchange Board of India (SEBI), has proposed amendments to mutual fund rules, allowing asset managers to offer both value and contra funds under specific conditions. This marks a departure from existing regulations, which restricted fund houses to launching only one of these two strategies.

Understanding Value and Contra Funds
Value funds focus on investing in undervalued companies, seeking long-term appreciation as market recognition of their intrinsic worth improves. Contra funds, conversely, adopt a contrarian approach, targeting underperforming stocks or sectors perceived to be undervalued by the broader market. These funds often hold defensive or "beaten-down" stocks, aiming to capitalize on market cycles.

Regulatory Shift
Under the proposed changes, mutual funds may now offer both fund types, provided their investment portfolios overlap by no more than 50%. This adjustment aims to enhance diversification options for investors while ensuring distinct strategies remain discernible. The move aligns with SEBI’s broader efforts to modernize mutual fund regulations and foster innovation in investment products.

Industry Context
The Indian mutual fund industry has seen significant growth, with net assets under management reaching nearly ₹75 trillion ($870.95 billion) in June 2025. SEBI’s consultation paper also seeks feedback on other proposals, including permitting equity schemes to allocate residual funds to assets like gold, real estate investment trusts (REITs), and infrastructure investment trusts (InvITs), excluding short-duration debt schemes.

Implications for Investors
The revised framework could expand investor choice, enabling access to complementary strategies tailored to varying market outlooks. However, investors must carefully assess the risk profiles of these funds, as both value and contra strategies carry distinct volatility and performance characteristics.

SEBI has invited public comments on the proposals until August 8, 2025. Finalizing these changes could further streamline India’s mutual fund ecosystem, balancing regulatory oversight with market flexibility.

(https://www.amfiindia.com/investor/knowledge-center-info?zoneName=CategorizationOfMutualFundSchemes): AMFI, Categorization of Mutual Fund Schemes
(https://www.reuters.com/sustainability/boards-policy-regulation/india-markets-regulator-proposes-several-changes-mutual-fund-rules-2025-07-18/): Reuters, India Markets Regulator Proposes Changes to Mutual Fund Rules