Investors can express their view on SEBI consultation paper by August 8.
| Photo Credit:
HEMANSHI KAMANI
Capital markets regulator SEBI is planning to allow equity mutual fund schemes to diversify by investing a residual portion in other asset classes such as debt, gold, silver, REITs and InvITs.
Residual portion refers to the remaining part of the scheme’s assets that is not invested in the primary asset class as defined by the scheme’s category. For instance, large-cap funds have to invest a minimum of 80 per cent in large-cap, while fund managers can invest the residual portion of 20 per cent in other categories such as mid- and small-caps.
Flexibility Sought
In a consultation paper issued on Friday, SEBI has sought investors’ views on a proposal to provide flexibility to the fund manager to deploy the residual portion in other permissible asset classes, to manage liquidity and risk.
The MF industry has grown significantly both in terms of assets under management (AUM) and investor participation since the initial categorisation norms were announced in 2020, said SEBI.
The surge has been accompanied by evolving investor preferences, diversification of asset allocation strategies and the emergence of new investment avenues such as REITs/InvITs.
Based on representations received from the industry and AMFI, a need was felt to review the categorisation circular to allow flexibility for product innovation while maintaining investor protection and scheme clarity.
It was noted that in case of some schemes, there was a significant overlap of portfolios and need was felt necessary to introduce clear limits to the industry to avoid schemes with similar portfolios, it said.
Investors can express their view on SEBI consultation paper by August 8.
Debt category schemes will also be allowed to invest the residual portion in REITs and InvITs, except for the schemes with shorter duration, such as Overnight Fund, Liquid Fund, Ultra-Short Duration Fund, Low Duration Fund and Money Market Fund.
Broader access
Sunil Subramaniam, CEO of independent think-tank Sense and Simplicity, said SEBI’s move to allow equity and debt schemes to invest in REITs and InvITs will deepen the new asset class market.
The regulator’s decision to allow fund houses to launch new schemes in the same category if the existing fund achieves ₹50,000 crore AUM and completes 5 years of operations will provide fund managers to have a similar portfolio in the new scheme without testing the individual single stock cap fixed by SEBI, he said.
To safeguard investors’ interest, he added that SEBI has capped the TER of the new scheme to that of the old scheme and also stopped fresh fund flow into the old scheme.
However, Subramaniam said it has to be clarified whether the long-running SIP in the old scheme will still continue, as changing the bank mandate from the old scheme to the new one will be a big task for investors.
Published on July 18, 2025