SEBI Categorisation of Mutual Funds: How Rationalisation Changed the Industry
- Rajeev Roshan R
- Aug 18, 2025
- 7 min read
Too many funds. Too many names. Too much confusion.
Not too long ago, if you looked at the Indian mutual fund industry, you’d see a sea of schemes—hundreds of funds, often with similar-sounding names, overlapping portfolios, and no clear way to compare one with another.
Investors thought they were diversifying. In reality, they often held three different funds from the same AMC that were invested in almost the same set of stocks. What looked like variety was just duplication.
It wasn’t just investors who were confused. Advisors found it difficult to explain distinctions, and even seasoned market participants struggled to map categories to actual mandates.
SEBI recognised this gap. In 2017, it stepped in with a landmark reform—Mutual Fund Categorisation and Rationalisation. This single move reshaped the entire industry and gave Indian investors something priceless: transparency.
Why Was Rationalisation Needed?
Before SEBI’s intervention:
Overlapping schemes: Multiple funds within the same AMC competing in the same style.
Marketing gimmicks: Fancy names and creative branding often masked the true nature of the fund.
Lack of comparability: Investors couldn’t compare a “Growth Fund” from AMC A with a “Bluechip Fund” from AMC B—though they were investing in the same universe.
Portfolio duplication: What appeared to be diversification often ended up being concentration in the same stocks.
The result? Lack of clarity, mis-selling opportunities, and an uneven playing field.
What SEBI Did: The New Framework
SEBI categorised all open-ended mutual funds into five broad categories:
Equity Funds
Debt Funds
Hybrid Funds
Solution-Oriented Funds (e.g., retirement, children’s education)
Other Funds (e.g., Fund of Funds, Index Funds, ETFs)
Each of these categories was further broken down into sub-categories with strict definitions. For example:
A Large Cap Fund must invest at least 80% in the top 100 companies by market capitalisation.
A Mid Cap Fund must invest at least 65% in companies ranked 101–250.
A Small Cap Fund must invest at least 65% in companies ranked 251 and below.
And here was the game-changing rule:
👉 One AMC can have only one scheme per sub-category.
This forced fund houses to merge, close, or reposition schemes that overlapped. The industry shrank in terms of scheme count, but what remained was far clearer and more investor-friendly.
The Impact of Categorisation
1. Transparency for Investors
Today, when you pick a “Large Cap Fund,” you know exactly what you’re getting—exposure to India’s top 100 companies.This consistency makes investing simpler and more transparent.
2. Easier Comparisons
Investors and advisors can now compare “apples to apples.”
AMC A’s Mid Cap Fund vs. AMC B’s Mid Cap Fund → both draw from the same universe.
Earlier, names were misleading. Now, definitions are standardised.
This comparability builds trust and confidence.
3. Reduced Mis-Selling
Before 2017, the same AMC could launch multiple “growth” funds with overlapping strategies, creating unnecessary complexity for investors.Now, with one fund per sub-category, the scope for duplication and mis-selling has reduced dramatically.
4. Better Portfolio Construction
The categorisation framework has made it easier to build structured portfolios.
For equity: investors can clearly allocate across large, mid, and small caps.
For debt: laddering across durations and credit qualities is more disciplined.
For hybrid: investors can balance risk and stability with well-defined choices.
Frameworks like Core + Satellite investing (which we use at VR Financial Services) become more powerful in this environment—because the building blocks themselves are clean and standardised.
5. Discipline for AMCs
The reform forced AMCs to genuinely differentiate their products.No more multiple funds with identical mandates.This has encouraged innovation in passive investing, thematic strategies, and ETFs.
The industry has shifted from quantity to quality.
Why This Matters Beyond Rules
At first glance, SEBI’s categorisation looks like a compliance exercise. But its impact runs deeper: it has restored trust in mutual funds.
For the average investor, trust is everything. When you know what you’re buying, when you can compare it easily, and when you’re confident the fund house cannot play a shell game with multiple schemes—you’re more likely to stay invested long-term.
And that is where real wealth is created.
“Money moves from those who do not manage it to those who do.”SEBI’s framework is about enabling more Indians to be on the right side of that transfer.
What Should Investors Do Now?
Check Your Portfolio
Ensure you’re not holding multiple funds in the same sub-category.
Eg: two large cap funds from different AMCs may not add much value.
Think in Categories, Not Names
Don’t get swayed by fancy labels.
First decide the category you need (large, mid, small, debt duration, etc.), then pick the best fund in it.
Use the Clarity for Structure
Build portfolios systematically:
Core: Large, Mid, Small cap, Debt laddering.
Satellite: Thematic, sectoral, momentum plays.
Stay Long-Term
Categorisation is a foundation, not a shortcut.
Real compounding still requires patience and discipline.
CASE STUDY : Can Jio Disrupt Mutual Funds the Way It Disrupted Telecom?
Not quite—and here’s why SEBI’s categorisation makes all the difference.
When Jio entered India’s telecom sector in 2016, it didn’t just join the game—it rewrote the rules. Unlimited data, free calls, dirt-cheap plans: disruption at its peak. Overnight, incumbents scrambled, some vanished, and the industry was never the same again.
So naturally, when Jio Financial Services announced its foray into asset management, the market held its breath. Could Jio do to mutual funds what it did to telecom?
The short answer: No—not in the same way.And the reason lies in SEBI’s categorisation and rationalisation framework.
Why Jio Can’t Rewrite the Rules in Mutual Funds
Unlike telecom, where pricing and packaging were the battlefield, mutual funds are governed by strict category definitions. SEBI ensures that every fund house—whether a new entrant like Jio or an old player like HDFC—must play by the same rules.
Here’s what that means:
1. One Fund per Category
Jio cannot launch five different large cap funds with different names and market them aggressively.
SEBI allows only one scheme per AMC per sub-category.
Whether it’s HDFC AMC, Nippon AMC, or Jio AMC—the playing field is level.
2. Standardised Mandates
A “Large Cap Fund” means at least 80% in top 100 companies.
A “Mid Cap Fund” means at least 65% in companies ranked 101–250.
Jio cannot bend these definitions to create a “super-large-cap-plus” marketing gimmick.
The category rules ensure clarity and prevent distortion.
3. Transparency > Pricing Gimmicks
In telecom, Jio won by slashing prices.
In mutual funds, expense ratios are already capped and regulated.
Even if Jio tries to cut costs aggressively, the difference is marginal—investors won’t shift en masse just for 0.1–0.2% savings.
4. Trust Is Built, Not Bought
Mutual funds are not about the cheapest plan. They’re about long-term trust, performance, and consistency.
Investors don’t switch funds overnight the way they ported SIM cards.
SEBI’s framework ensures stability, which slows down any “shock disruption.”
So Where Can Jio Compete?
This doesn’t mean Jio has no edge. It does—but within the framework:
Distribution & Technology: Jio’s strength lies in reach. With its digital ecosystem (Jio apps, payments, platforms), it can onboard investors at scale.
Passive Funds & ETFs: These are cost-driven products where Jio could leverage low-cost tech infra.
Awareness & First-Time Investors: Jio can bring in millions of new investors who’ve never bought a mutual fund before. That’s an expansion of the pie, not a disruption of existing players.
Why This Case Matters for Investors
SEBI’s categorisation ensures that:
A new entrant cannot confuse investors with 20 fancy schemes in the same bucket.
Every AMC must compete on execution, consistency, and service—not marketing gimmicks.
Investor protection remains the central focus.
In telecom, disruption came at the cost of a bloodbath for incumbents. In mutual funds, disruption will look different: broader access, better service, and more efficiency—not chaos.
The Bigger Lesson
Regulation is not about slowing innovation. It’s about ensuring innovation happens responsibly.
Jio’s entry will likely accelerate digitisation, improve investor education, and drive AMCs to adopt more tech. But thanks to SEBI’s framework, the core promise of mutual funds—transparency, comparability, and trust—will stay intact.
That’s the beauty of rationalisation: it protects investors while allowing the industry to grow.
The Bottom Line
SEBI’s categorisation and rationalisation of mutual funds is more than just a regulatory move—it’s a structural reform that reshaped the Indian investment landscape.
It turned a cluttered industry into one defined by clarity, comparability, and confidence.
It gave investors the ability to trust what they own, structure portfolios with purpose, and stay invested for the long term.
It created a level playing field where genuine strategies matter more than marketing gimmicks.
At VR Financial Services, our role is not just to help you invest—it’s to ensure you’re prepared.
SEBI’s categorisation has given investors clarity, but clarity alone is not enough. You also need:
Structured, goal-oriented portfolios that can weather market cycles without knocking you off your long-term path.
Balanced asset allocation, so you always have the liquidity and courage to act when markets present rare “valley” moments.
A disciplined Core + Satellite approach, blending steady growth with selective opportunities for acceleration.
A focus on staying unemotional and strategic—so your actions are driven by clarity, not fear or FOMO.
We don’t just help you invest across asset classes. We help you invest with purpose and readiness, so when those rare wealth-transforming windows appear, you can step in confidently instead of scrambling.
Because in the end—
True wealth isn’t about predicting markets—it’s about aligning discipline with the transparency SEBI has made possible.
VR Financial Services, based in Bengaluru and founded in 2019, is a partner-led wealth solutions firm. We go beyond distribution—we empower individuals, families, businesses, and trusts to build wealth with clarity, structure, and confidence.
What we offer:
End-to-end investment access across mutual funds, NPS, FDs, and more
Seamless online execution with comprehensive asset tracking in one place
Deep research & reporting tools for smarter, data-backed decisions
Insurance solutions across life and general coverage for protection at every stage
Flexible liquidity options, including loans against mutual funds
Our Approach
We are not just providers of products—we are partners in your journey.
Our approach is:
Structured & goal-oriented, so portfolios evolve with life stages and market cycles
Data-driven, with Core + Satellite frameworks ensuring discipline and agility
Transparent & tech-enabled, making your financial journey simpler and more effective
At VR Financial Services, we believe wealth is not built by chasing every market move—but by preparing for the few transformative moments that truly matter. Our role is to make sure you’re ready when they arrive.
Empowered Wealth. Personalised Journey. Tech-Enabled Precision.
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Disclaimer:
Mutual Fund investments are subject to market risks. Please read all scheme-related documents carefully before investing. The information shared by VR Financial Services is for educational and informational purposes only and should not be considered a recommendation or an offer to buy or sell any financial product. Past performance is not indicative of future results. Investors must ensure KYC compliance through authorised intermediaries, conduct their own due diligence, and make informed decisions. VR Financial Services does not guarantee returns or offer fixed/assured return schemes—any such claims are misleading and prohibited by SEBI. All investment transactions must be carried out only through official channels, and investors should never share personal credentials or OTPs. We do not solicit funds or commitments via social media, which is used strictly for investor awareness and education.
