India Overhauls Mutual Fund Rules and Gold Exposure
India's regulator revamped mutual fund rules to limit portfolio overlaps and add new categories. The changes also allow higher gold and silver exposure.
The markets regulator in India has overhauled its mutual fund rulebook, introducing new scheme categories and tightening restrictions on portfolio overlaps to enhance transparency. The Securities and Exchange Board of India (SEBI) aims to standardize classifications and disclosures within the country's $900 billion mutual fund industry, which has seen equity inflows of 12.02 trillion rupees over the last five years. The regulator expanded the number of mutual fund groups to 40, adding categories such as life-cycle funds for long-term investing and sectoral debt funds. To ensure schemes remain true-to-label, SEBI is enforcing stricter alignment between portfolios and their defined asset classes. Overlap between the portfolios of value and contra funds is now limited to 50%, while thematic equity schemes are restricted to a 50% overlap with other thematic or equity categories, except for large-cap schemes. > This is a major shift from labelling to clear demarcation and will reduce duplicate funds within the same AMC, making it harder to run multiple schemes that are essentially the same portfolio with different names. Asset managers must now publish monthly category-wise overlap disclosures on their websites. While thematic funds have three years to comply, other schemes must meet the new standards within six months. SEBI also discontinued solution-oriented schemes, mandating their merger into similar funds. The new framework also permits increased exposure to precious metals, allowing mutual funds to allocate residual portions of equity schemes to gold and silver instruments. Hybrid schemes may now invest in gold and silver exchange-traded funds. This regulatory formalization provides a structured way for investors to use metals for diversification, tracking a market that includes major producers like Barrick Gold Corporation and investment entities such as SilverBox Corp IV. Under the new life-cycle fund category, schemes can invest up to 10% in gold and silver ETFs, commodity derivatives, and infrastructure investment trusts. > The changes formalise the inclusion of gold and silver in mutual fund portfolios, giving investors a regulated way to use these metals mainly as diversification tools, while preserving each schemes core identity.
