New liberty: AMCs can launch 2 funds in same category; proposes Sebi

Kolkata: The importance of the mutual fund industry is rising by leaps and bounds in the country with more and more Indians channelising household savings to mutual funds. Capital markets regulator Sebi (Securities and Exchange Board of India) has floated a consultation paper that has proposed significant changes in mutual fund domain has given the liberty to an asset management company to float both Value funds and Contra funds. There are more significant changes in the offing.

While Sebi allows an AMC to launch only one scheme in a category, the regulator has proposed that it will allow the launch the two schemes by an AMC under certain conditions. This can be allowed if the AMC has run the first scheme for more than five years and its assets under management has risen to more than Rs 50,000 crore. The point to note is that only a few schemes will satisfy these criteria.

How will this new fund work out? Sebi has said that the first scheme (or original one, if you want to say so) will stop accepting fresh lump-sum investments. (However, SIPs will carry on.) Another "Scheme Information Document" will be issued by the AMC and the new scheme should feature the same investment objective and asset allocation. However, despite the similarities, The schemes have to be renamed differently so as to be clear to investors. Another stipulation by Sebi is that the total expense ratio of the new scheme must not be higher than the first one.

Another measure is to allow the same AMC the liberty to launch a value fund and contra fund. The point is that these two categories of funds should inform investors separate investment strategies. The points is to prevent more than 50% funds overlap at any time so that their holdings are distinct and investors don't get confused by the same holdings. Increased clarity and prevention of duplication of products are the main aims of the market regulator.

Sebi has also proposed a correcting mechanism if more than 50% commonality creeps into these portfolios. The paper tells that there should be reviews of portfolios of these schemes once every six months. If the overlap of the two portfolios are found to exceed the 50% ceiling, they should be rebalanced in a time window of 30 trading days. However, if it is found that overlaps still persist, investors will get an opportunity to exit the scheme. There will be no penalty for this exit.

There is another proposal that will improve flow of capital to the REIT and InvIT space. It will also help investors to diversify their portfolio indirectly. Sebi has proposed that while equity-oriented mutual fund schemes maintain the 65% investment in stocks, they will get the opportunity to invest the remaining 35% in debt instruments, and REITs and InvITs apart from precious metals such as gold, silver and other approved securities. Debt schemes will also be able to invest in REITs and InvITs. However, ultra-short term funds will not be allowed such investments.

Sebi has urged stakeholders to send their feedback by August 8, 2025.