SEBI Panel On Mutual Funds To Discuss Ways To Curb Sectoral Fund Accrual In Next Meeting — Exclusive

The mutual fund committee of the Securities and Exchange Board of India will discuss ways to curb the proliferation of sectoral and thematic mutual fund schemes in the upcoming meeting, people in the know told NDTV Profit.

While the measures were supposed to be discussed in the last meeting conducted on Monday, the detailed consultations could not take place due to paucity of time. Hence, the intricacies to bring curbs will be discussed in the next meet, as per the sources.

One root cause of the proliferation of thematic mutual fund schemes is the arbitrage between normal schemes and new fund offers, said Madhabi Puri Buch, chairperson of SEBI, at an event on Friday.

Therefore, to curb such proliferation, the regulator is trying to address its root cause, that is the incentive to issue new NFOs, she said. The way to go ahead with this will likely be worked out by the regulator's committee.

In the year 2017, SEBI came out with five main categories of mutual fund schemes, which were equity schemes, debt schemes, hybrid schemes, solution-oriented schemes, and other schemes. Each of these categories was further divided into multiple subcategories based on their investment objectives and asset allocation.

To prevent duplication and make fund selection more transparent, SEBI imposed a restriction allowing mutual fund houses to offer only one scheme per subcategory.

This meant that each mutual fund company could not launch multiple similar schemes under the same category, ensuring that investors had distinct choices without unnecessary overlap.

However, SEBI made exceptions for sectoral and thematic funds. This eventually led to a proliferation of such schemes.

On Friday as well, Buch had also mentioned that there was an incentive, which was a bit of a perverse incentive, to launch more and more NFOs in thematic funds.