SEBI (Securities & Exchange Board of India) has updated the rules for how Mutual Fund
schemes are categorised and named. These changes aim to make investing simpler, clearer, and more
transparent for you. Here's what's changed and what it means for your investments.
Updated Scheme Categories at a Glance
📈
Equity Schemes
13 sub-types (Large, Mid, Small Cap etc.)
🏦
Debt Schemes
17 sub-types incl. new Sectoral Debt
⚖️
Hybrid Schemes
7 sub-types (Balanced, Arbitrage etc.)
🎯
Life Cycle Funds
Goal-based, glide-path investing
🗂️
Other Schemes
Index Funds, ETFs & Fund of Funds
5 Key Changes That Affect You
🎯
1. Life Cycle Funds — Brand New!
A completely new fund for long-term goals like
retirement. Tenure: 5 to 30 years. As you get closer to your goal, it automatically shifts
from equity (higher risk) → debt (lower risk).
🚫
2. Solution-Oriented Schemes Discontinued
Retirement Fund & Children's Fund will stop
accepting new investments immediately. Existing money will be merged into similar schemes —
your investment is safe.
🏷️
3. Scheme Names = Category Names
A fund's name must match its category exactly.
No fancy or misleading names! A "Large Cap Fund" must be called exactly that — helps you instantly
identify what it does.
🏗️
4. New Sectoral Debt Funds Introduced
First-ever sector-specific debt funds. Allowed sectors:
Financial Services, Energy, Infrastructure, Housing & Real Estate. Invest in
high-quality (AA+) bonds only.
Compliance Timeline — What Happens When?
📋
Feb 26, 2026
Circular issued & in force
⏸️
Immediately
Solution-Oriented Schemes stop subscriptions
6M
By Aug 2026
All existing schemes must comply with new rules
3Y
By Feb 2029
Sectoral/thematic fund overlap limits enforced
6
Months for existing schemes to comply with new rules
17
Debt fund sub-categories (new Sectoral Debt added)
50%
Maximum portfolio overlap allowed between sectoral/thematic funds
📊 New Rule: Portfolio Overlap Limits
Sectoral/thematic funds must not have more than 50% common stocks with other equity funds.
This ensures each fund stays truly unique and is not a copy of another.
Funds that can't meet this
are merged. AMCs must publish overlap data monthly on their websites.
🔄 Life Cycle Fund: How the Glide Path Works
As your fund
gets closer to maturity, equity reduces & debt increases — automatically.
| Years to Goal |
Equity % |
Debt % |
Others % |
| 15–30 yrs |
65–95% |
5–25% |
0–10% |
| 10–15 yrs |
65–80% |
5–25% |
0–10% |
| 5–10 yrs |
50–65% |
5–25% |
0–10% |
| 3–5 yrs |
35–50% |
25–50% |
0–10% |
| 1–3 yrs |
20–35% |
25–65% |
0–10% |
| < 1 yr |
5–20% |
25–65% |
0–10% |
Exit load: 3% (yr 1), 2% (yr
2), 1% (yr 3) — encourages long-term discipline.
New Debt Fund Duration Categories
| Fund Type |
Macaulay Duration (Portfolio Level) |
Best For |
| Overnight Fund |
1 day |
Parking idle cash, very safe |
| Liquid Fund |
Up to 91 days |
Emergency fund, short-term |
| Ultra Short Term Fund |
3–6 months |
3–6 month horizon |
| Ultra Short to Short Term ⭐ |
6–12 months |
6–12 month goals (newly clarified) |
| Short Term Fund |
1–3 years |
1–3 year goals |
| Medium Term Fund |
3–4 years |
Medium term goals |
| Long Term Fund |
7+ years |
Long-term wealth building in debt |
13
Equity Schemes
Large/Mid/Small Cap, Flexi, ELSS etc.
17
Debt Schemes
Overnight to Long-Term + new Sectoral
7
Hybrid Schemes
Conservative to Arbitrage
1
Life Cycle Funds
New — goal-based glide path
2
Other Schemes
Index/ETF + Fund of Funds
40
Total Fund Categories
Across all classes
📈 Equity Schemes — Min. Allocation Rules
Sectoral / Thematic
Min 80% Sector/Theme
≤20%
ELSS (Tax Saver)
Min 80% Eq (3-yr lock)
≤20%
🎯 Life Cycle & Other Schemes
Life Cycle Fund
Equity→Debt glide path
≤10%
Fund of Funds
Min 95% — Underlying Funds
⚖️ Hybrid Schemes — Asset Allocation
Balanced Hybrid
40–60% Equity
40–60% Debt
Multi Asset Allocation
≥10% Equity
≥10% Debt
≥10% Other
Arbitrage Fund
Min 65% Eq (Hedged)
Govt <1yr
Equity Savings
15-40% net
Arb (65% eq)
≥10%
🏦 Debt Schemes — Min. Allocation & Duration
| Scheme |
Min. Alloc |
Duration / Maturity |
Rating |
| Overnight Fund |
100% |
1 day |
Sovereign |
| Liquid Fund |
100% |
≤91 days |
All |
| Ultra Short Term |
100% |
3–6 months |
All |
| Ultra Short to Short |
100% |
6–12 months |
All |
| Money Market |
100% |
≤1 year |
All |
| Short Term |
100% |
1–3 yrs |
All |
| Medium Term |
100% |
3–4 yrs |
All |
| Med. to Long Term |
100% |
4–7 yrs |
All |
| Long Term |
100% |
>7 yrs |
All |
| Dynamic Term |
100% |
Any duration |
Variable |
| Corporate Bond |
80% |
Any |
AA+ & above |
| Credit Risk |
65% |
Any |
AA & below |
| Banking & PSU Debt |
80% |
Any |
High Grade |
| Gilt Fund |
80% |
Across maturity |
Sovereign |
| 10-yr Constant Gilt |
80% |
= 10 yrs |
Sovereign |
| Floating Rate |
65% |
Any |
All |
| Sectoral Debt ⭐ |
80% |
Any |
AA+ & above |
⭐ New category added in this
circular. Debt schemes may invest residual in InvITs (except Overnight, Liquid, Ultra Short, Money
Market).
What Should You Do As an Investor?
🔍
Review Your Portfolio
Check if any of your funds fall under Solution-Oriented Schemes
being discontinued
📞
Talk to Your MFD
Ask how your existing SIPs or lump-sum investments will be
affected by scheme mergers
🎯
Explore Life Cycle Funds
Great for retirement or long-term goals — automatically balances
as you age
🏷️
Don't Panic on Name Changes
If your fund's name changes, check its new category — it must
match. Your money is safe.
📊
Watch for Overlap Disclosures
AMCs will now publish monthly overlap data. Helps avoid
duplicating risk unknowingly
✅
No Tax Impact
Scheme mergers due to these changes are NOT treated as
fundamental attribute changes — no automatic redemption
Disclaimer: This is a simplified reference guide for investor awareness. Asset allocation
ranges shown are minimum thresholds per SEBI circular — actual fund portfolios may vary. Mutual Fund investments
are subject to market risks. Please read all scheme-related documents carefully before investing. Consult your
Mutual Fund Distributor or Financial Advisor for personalised advice. While every effort has been made to ensure
data accuracy, errors may occur.
Report an error here.