However, to keep up with the dynamic investment environment and the opportunities that are emerging across asset classes, SEBI has now replaced Clause 2.6 with a new framework for the categorisation and streamlining of mutual fund schemes. On that note, let’s understand what’s with the all-schemed divided into 5 categories and also let’s explore which mutual fund 41 schemes got shut by SEBI.
SEBI New Rules on Mutual Funds: All schemes divided into 5 categories
Market regulator Securities and Exchange Board of India, i.e. SEBI, has made major changes in the categories and rules of mutual fund schemes. Under these rules of SEBI, the categories of some old funds have been closed, and almost all the funds have been divided into 5 major categories. Its clear objective is to provide more clarity to the investors, reduce overlap in schemes, and every fund should work as per its name.
All schemes are divided into 5 categories
The biggest change in equity funds is regarding overlap. Now, fund houses can launch both value funds and contra funds, but their portfolios cannot contain more than 50 per cent of the same stocks. This means that if you invest in value and contra funds from the same AMC, they will be monitored to ensure that they do not hold nearly the same stocks. Sectoral and thematic funds have also been tightened. Their portfolios should not overlap more than 50per cent with other equity schemes.
Funds that currently have significant overlap will have to gradually reduce this over three years. If the rules are not met even after three years, such schemes will have to be merged. Additionally, launching funds by sector or theme names will now require following the list established by the Association of Mutual Funds in India (AMFI). This will reduce the scope for launching funds with arbitrary names.
Within debt funds, the basic structure of medium-term and medium-to-long-term funds will remain the same, but fund managers will now have the flexibility to reduce the duration of the portfolio based on interest rate risk. However, if the duration is reduced below the prescribed limit, the AMC will have to record the reasons in writing and inform the trustees.
A new category, sectoral debt funds, has also been added. However, before launching these funds, AMCs must ensure that sufficient investment-worthy bonds in that sector are available in the market. This means that sector funds cannot be created simply for the sake of a name.
Hybrid funds, which are a mix of equity and debt, will now be able to invest their residual portion in options like InvITs, gold ETFs, and silver ETFs. However, this will be within regulatory limits. This will allow fund managers to further diversify their portfolios.
The Life Cycle Fund will be an open-ended scheme, but with a pre-determined maturity and a “glide path” strategy. Simply put, as your goal approaches, the fund will automatically shift from equity to debt. The minimum tenure can be five years, and the maximum can be 30 years. Funds with different maturities can be launched at five-year intervals, such as 2045 or 2055. These funds will have higher equity exposure in the initial years and will decrease over time. To instil investor discipline, exit loads are also imposed: 3 per cent for the first year, 2 per cent for the second year, and 1 per cent for the third year.
SEBI New Rules on Mutual Funds: 41 schemes of one category closed
Making a major change in the mutual fund industry, market regulator Securities and Exchange Board of India (SEBI) has announced the closure of the Solution-Oriented Scheme category. This decision will directly impact the 62.61 lakh investors who have invested in these schemes.2026 Till now, a total of 41 schemes were active in this category, and now SEBI has immediately banned new investments in these.
Solution-oriented schemes shut down by SEBI
Solution-oriented schemes were originally designed for goal-based investing. These two main types were retirement funds and children’s funds. The objective was to encourage investors to invest over a long period of time to achieve goals such as their retirement or their children’s education/future. These schemes often included a lock-in period to prevent investors from withdrawing funds mid-term and ensure their goals were met.
According to January 2026 data from the Association of Mutual Funds in India (AMFI), this category included 29 retirement funds and 12 children’s funds. A total of 41 schemes had assets under management (AUM) of Rs 57,274 crore. Of these, retirement funds had an AUM of Rs 32,044 crore and children’s funds had an AUM of Rs 25,230 crore. This was no small category, but one that commanded the trust of millions of investors.
Why did SEBI shut it down?
SEBI aims to simplify mutual fund structures and make them more “true to label.” The regulator wants each scheme to be clearly identified by its name and category. Solution-oriented schemes often had asset allocation and risk profiles that were very similar to other schemes, leading to overlap and confusion. This is being replaced by new categories like life cycle funds, where the investment path is pre-determined, and the equity-debt balance will automatically change over time. This means goal-based investing will remain, but with more clear rules.
(Disclaimer: The above article is meant for informational purposes only, and should not be considered as any investment advice. ET NOW DIGITAL suggests its readers/audience to consult their financial advisors before making any money related decisions.)
