SEBI Tightens Mutual Fund Regulatory Framework Impacting Equity Fund Structures

The Securities and Exchange Board of India announced a comprehensive overhaul of mutual fund regulations on 26 February 2026 that is set to reshape product structures and investor disclosures in the asset management industry. Under the revised framework, scheme categorisation has been reworked with an eye on clarity and reducing overlap among funds. Portfolio overlap norms have been introduced to limit duplication between similar funds, especially thematic, sectoral, value and contra strategies. Equity and contra funds are now required to maintain a minimum 80 percent allocation to listed equities. Monthly disclosures of portfolio overlap will be mandated along with standardized measurement methodologies to promote transparency.

A key part of the new regime is the introduction of Life Cycle Funds, which are open-ended schemes designed with defined maturities and glide path asset allocation models that progressively reduce exposure to equities as a fund approaches its target date. Existing schemes under categories such as retirement and children’s funds have been discontinued and must either wind up or merge with other products that match their risk and asset profiles. Naming conventions have also been tightened to ensure scheme names reflect their underlying mandate rather than emphasise return expectations.

The move comes as part of SEBI’s broader efforts to simplify the industry’s regulatory architecture while strengthening investor protection and product transparency. Existing funds will be given defined timelines to align with the revised categorisation and compliance requirements.