The Securities and Exchange Board of India (SEBI) on February 26, 2026, issued a notification regarding categorisation and rationalisation of Mutual Funds.
The following has been stated:
• SEBI, vide various earlier circulars dated October 06, 2017, read with circular dated November 06, 2020, issued directions regarding categorization and rationalization of Mutual Fund Schemes. These circulars were consolidated as Clause 2.6 of Chapter 2 of the Master Circular for Mutual Funds dated June 27, 2024 (hereinafter referred to as “Master Circular”).
• In order to accommodate the continuously evolving landscape of mutual fund investments and the emergence of opportunities across various asset classes, Clause 2.6 of Chapter 2 of the Master Circular has been superseded.
• As per Clause 2.6.1, Mutual Fund schemes are broadly classified into five categories, namely: (A) Equity Schemes, (B) Debt Schemes, (C) Hybrid Schemes, (D) Life Cycle Funds, and (E) Other Schemes. Equity schemes predominantly invest in equity and equity-related instruments. Debt schemes predominantly invest in debt and debt-related instruments. Hybrid schemes invest in a mix of asset classes such as equity, debt, InvITs, and commodity-related instruments as permitted by SEBI. “Other Schemes” include Fund of Funds and Passive Schemes such as Index Funds and ETFs.
• Clause 2.6.2 clarifies that the term “residual portion” refers to that part of a scheme’s corpus which is not invested in its main or core asset classes as specified in the scheme characteristics.
• Under the category of Equity Schemes, various sub-categories are prescribed along with defined investment thresholds and uniform descriptions. A Multi Cap Fund shall invest a minimum of 75% in equity and equity-related instruments, with at least 25% each in large-cap, mid-cap, and small-cap companies, and is described as an open-ended equity scheme investing across large-cap, mid-cap, and small-cap stocks.
• A Large Cap Fund shall invest a minimum of 80% of total assets in equity and equity-related instruments of large-cap companies and is described as an open-ended equity scheme predominantly investing in large-cap stocks.
• A Large & Mid Cap Fund shall invest a minimum of 35% each in large-cap and mid-cap companies and is described as an open-ended equity scheme investing in both large-cap and mid-cap stocks.
• The revised framework standardizes scheme categorization, prescribes clear investment limits, and provides uniform descriptions in order to enhance transparency, comparability, and investor protection.
Please refer to the document attached below for more details.
[Notification No. HO/24/13/15(2)2026-IMD-RAC4/I/5764/2026]
