SEBI may allow 2 mutual funds per category: Here’s how that affects your investments

What if your mutual fund suddenly stopped accepting new investments? That’s exactly what could happen if SEBI’s latest proposal goes through and it might change how you choose and stay invested in mutual funds.

In a major shake-up for the ₹46-lakh crore mutual fund industry, SEBI has proposed allowing mutual fund houses to launch a second scheme within the same category — something that’s not allowed today. 

Under current rules, each AMC can have only one scheme per category, whether it’s a large-cap fund, a mid-cap fund, or a hybrid.

But now, SEBI wants to make an exception — and here’s how it would work:

When can a fund house launch a second scheme?

Only if:

• The existing scheme is more than 5 years old
• And its Assets Under Management (AUM) exceed ₹50,000 crore
• This means only a handful of large-scale funds — like Parag Parikh Flexi Cap, which now manages over ₹1 lakh crore — would qualify.

What happens when a new scheme is launched?

• The original scheme will stop accepting new lump-sum investments (though existing SIPs will continue)
• A separate Scheme Information Document will be issued
• The new scheme must have a similar investment objective, asset allocation, and strategy
• TER (Total Expense Ratio) of the new scheme cannot exceed the original
• The two schemes must have clearly different names — e.g., “Mid Cap Fund Series 1” and “Mid Cap Fund Series 2”

Why is SEBI doing this?

SEBI is responding to concerns that some schemes have become too large to manage effectively. A massive fund can dilute returns and force the fund manager to compromise on strategy — for instance, a “small-cap” fund taking heavy large-cap exposure to maintain liquidity.

But here’s the catch

The proposed rule could create issues for existing investors.

Kirtan A Shah, founder of Credence Wealth, pointed out on X: “If I was an investor in the first fund, I will pull off my investments because the fund can only see redemptions and no inflows… this should hurt the performance of the original old fund.”

Why? If investors shift en masse to the new scheme, the old fund could face constant outflows and lose its edge.

Will fund houses be allowed unlimited schemes?

No. SEBI says only two schemes per category will be allowed at any time. However, fund houses may merge the two if one loses scale or purpose.

What should investors watch for?

• If your fund is large and over 5 years old, it could be affected
• New scheme launches may look attractive — but performance history will be limited
• Older schemes could see performance volatility if redemptions spike