SEBI Categorization — From 36 to 40 Categories
SEBI's Mutual Fund Categorization and Rationalization circular (October 6, 2017) originally classified all mutual fund schemes in India into 36 categories acros...
SEBI Categorization — From 36 to 40 Categories
SEBI's Mutual Fund Categorization and Rationalization circular (October 6, 2017) originally classified all mutual fund schemes in India into 36 categories across 5 broad groups — Equity (11), Debt (16), Hybrid (7), Solution-Oriented (2), and Other Schemes (2). Each AMC is permitted to offer only one scheme per category, with the exception of Index Funds, ETFs, and Fund of Funds. Under the SEBI (Mutual Funds) Regulations 2026, effective April 1, 2026, this framework expands to 40 categories with the addition of new categories such as Life-Cycle Funds and Sectoral Debt Funds, while Solution-Oriented schemes (Retirement and Children's funds) are being discontinued.
Over the past two decades, the Indian mutual fund industry witnessed what was often called the "scheme jungle" problem. Before 2017, there were over 2,000 mutual fund schemes in India and most investors — even experienced distributors — could not tell the difference between a "Growth Fund," an "Opportunities Fund," and a "Select Fund" from the same AMC. Two large-cap funds from the same AMC would hold virtually identical portfolios but carry different names and different expense ratios. The October 2017 circular by SEBI did three revolutionary things: first, it defined exactly what each category means with strict portfolio composition rules (for example, a Large Cap fund MUST hold at least 80% in the top 100 stocks by market cap — no ambiguity). Second, it limited each AMC to one scheme per category, which meant AMCs had to merge dozens of overlapping schemes. Third, it created a uniform naming convention so investors can compare apples to apples across AMCs. An important nuance often overlooked is how this circular fundamentally changed fund recommendations. Before 2017, a distributor could recommend five "large-cap" funds from the same AMC. Now, each AMC has exactly one. This simplifies the selection process — compare the single large-cap offering from each AMC and pick the best one for the client. With India's mutual fund industry now managing over ₹82 lakh crore in AUM, more than 27 crore folios, and monthly SIP inflows exceeding ₹29,000 crore, the framework continues to evolve. The SEBI (Mutual Funds) Regulations 2026 (effective April 1, 2026) expand the classification to 40 categories, adding new categories like Life-Cycle Funds and Sectoral Debt Funds, while discontinuing Solution-Oriented schemes. The TER framework is also changing to a Base Expense Ratio (BER) model with separate levies.
A Practical Example
Consider the case of Rajesh, a distributor in Nagpur, whose client Suresh held 12 mutual fund schemes across 3 AMCs. Upon analyzing the portfolios after the SEBI categorization circular, it was discovered that 5 of those 12 schemes were essentially large-cap funds with different names — "Growth Fund," "Equity Plus," "Blue Chip," "Top 100," and "Frontline." The overlap was staggering — HDFC Bank, Reliance Industries, and Infosys appeared in all five portfolios. After the SEBI-mandated mergers, those 5 schemes became 3 distinct categories: one Large Cap, one Flexi Cap, and one Focused Fund. Suresh's portfolio finally made sense. His overall equity allocation dropped from a perceived 12 schemes to 7 truly diversified holdings. This case illustrates a common pre-2017 problem: investors held multiple schemes thinking they were diversified, when in reality they had concentrated exposure to the same stocks under different scheme names.
What Makes This Important
Frequently Asked Questions
Before 2017, AMCs launched schemes with fancy names that made it nearly impossible for investors to compare funds. Two "large-cap" funds from the same AMC could have completely different mandates. SEBI's 36-category framework ensures clear definitions, prevents scheme proliferation, and allows investors to make genuine comparisons across AMCs. For distributors, this is a significant advantage — it enables confident communication to clients about what a fund will and will not do. Note: From April 2026, the framework expands to 40 categories under the new SEBI (Mutual Funds) Regulations.
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