SEBI Overhauls Mutual Fund Categories: 36 to 40 Categories, 50% Overlap Cap, 80% Equity Rule

26 February 2026
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Source: SEBI Circular SEBI/HO/24/13/15(2)2026 dated 26 Feb 2026; IND money; My Money Sage; Startup Success Stories

SEBI issued a comprehensive circular overhauling mutual fund categorisation. Fund categories expanded from 36 to 40, including new Life Cycle Funds designed for goal-based investing with automatic asset allocation shifts over time. Minimum equity exposure raised from 65% to 80% for several equity categories (large-cap, mid-cap, small-cap, multi-cap, flexi-cap). A strict 50% portfolio overlap cap introduced for sectoral and thematic funds within the same AMC. Solution-oriented funds (retirement funds, children’s funds) discontinued — existing schemes must stop fresh subscriptions and merge with similar schemes. Equity funds can now hold up to 35% of non-core allocation in gold, silver, InvITs, and debt instruments. Debt fund naming simplified. Fund houses can now offer both Value and Contra funds simultaneously.

💰 Impact on your wallet: If you hold multiple thematic or sectoral funds from the same AMC, some may be merged or restructured due to the overlap cap. Check your portfolio — you may have been unknowingly paying for the same stocks in different wrappers. If you hold retirement or children’s funds, they’ll be merged into similar regular schemes. Your AMC will notify you. The 80% minimum equity rule means your equity fund will hold more equity and less cash — genuinely “true to label.” The new Life Cycle Funds are worth exploring if you want a set-and-forget option for retirement.

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