Sebi’s new MF rulebook: Clarity or more clutter?

Sebi eight years, but it got there.The portfolio overlap restriction on sectoral and thematic funds is equally welcome. No sectoral or thematic fund can now have more than 50% overlap with other equity schemes, computed quarterly from daily values. Existing schemes get three years to comply or merge.This addresses a growing problem: thematic funds barely distinguishable from diversified ones.

An “infrastructure” fund dominated by Reliance, L&T and ICICI Bank is not meaningfully different from a large-cap fund. Now, fund houses must demonstrate differentiation with data. This rule has teeth.The true-to-label naming rule is overdue.

No more “opportunities” or “wealth creators” in scheme names. If it is a flexi-cap fund, it should say so.The circular does not simplify; it expands. Sectoral debt funds—corporate bonds from specific sectors such as financial services, energy or infrastructure—have been introduced.

For a retail investor already navigating 17 debt categories, this adds complexity rather than clarity.Life cycle funds are another addition. Target-date funds with glide paths and multiple asset classes are conceptually sound. A fund that automatically shifts from equity to debt as a goal approaches is useful.But experience suggests what may follow.

Industry manufactures them at scale, markets them aggressively, and moves on. With around 40 AMCs allowed up to six such funds each, the market could see nearly 240 variants. The product designed to simplify investing becomes another source of the question: which one to pick?The fund-of-funds framework is a regulatory masterwork, with six broad categories, three options per category, region-specific lists, and detailed nomenclature rules.