In a move aimed at balancing growth with investor protection, capital markets regulator SEBI has proposed a new framework that would allow mutual fund houses to launch a second scheme in the same category, such as large-cap or mid-cap, under certain conditions. The proposal is part of a draft circular released on July 18, with public feedback open until August 8.
What’s the Proposal?
Currently, fund houses are restricted to offering only one mutual fund per category (like one large-cap fund or one mid-cap fund) to avoid confusion and duplication. But as some funds have grown too large—managing over ₹50,000 crore in assets—handling such massive portfolios has become operationally difficult.
To fix this, SEBI is proposing that:
- If a mutual fund scheme has completed five years and has an AUM (Assets Under Management) of over ₹50,000 crore, the fund house can launch a second scheme in the same category.
- Once the second scheme is launched, the first one must be closed to new investments, though existing investors can stay invested.
- The expense ratio (fees charged to manage the fund) of the second scheme must be equal to or lower than the original fund
- Explained with an Example:
Imagine a fund house runs a large-cap fund called “Alpha Large Cap Fund” which has grown to ₹60,000 crore in assets. Managing this huge amount becomes difficult for the fund manager.
Under SEBI’s proposal, the fund house can now launch “Alpha Large Cap Fund – Series II.” However, “Series I” will be closed to new investors. Investors in Series I can remain invested, and new investors can join Series II.
The second scheme won’t be allowed to charge higher fees than the first, ensuring fairness.
Concerns and Clarifications
Some in the industry are concerned about the impact on SIP (Systematic Investment Plan) investors. They want SEBI to allow existing SIPs to continue even if the first fund is closed to new investments.
Others feel a small flexibility in expense ratio (TER) could help cover distribution costs for new schemes. Overall, the move is seen as a positive, scalable solution that allows growth while safeguarding investor interest.
