The Securities and Exchange Board of India has issued a circular dated February 26, 2026, superseding Clause 2.6 of the Master Circular for Mutual Funds (June 27, 2024) and revising the categorization and rationalization framework for mutual fund schemes. Schemes are classified into Equity, Debt, Hybrid, Life Cycle Funds, and Other Schemes, with detailed asset allocation norms and uniform scheme descriptions prescribed for each category. The circular introduces portfolio overlap limits for sectoral/thematic equity schemes, mandates quarterly computation and phased realignment within three years, and requires monthly disclosure of category-wise portfolio overlaps. It standardizes naming conventions to ensure schemes remain “true-to-label” and prohibits return-focused words in scheme names. Solution Oriented Schemes are discontinued, with existing schemes to stop subscriptions and merge after SEBI approval. Medium duration debt funds may reduce portfolio duration under adverse situations with documented justification. All schemes must align nomenclature and parameters within six months.
Securities and Exchange Board of India
Circular No. HO/24/13/15(2)2026-IMD-RAC4/I/5764/2026 February 26, 2026
To,
All Mutual Funds
All Asset Management Companies (AMCs)
All Trustee Companies/ Board of Trustees of Mutual Funds
Association of Mutual Funds in India (AMFI)
Madam/ Sir,
Subject: Categorization and Rationalization of Mutual Fund Schemes
1. SEBI vide circular no. SEBI/HO/IMD/DF3/CIR/P/2017/114 dated October 06, 2017, read with circular no. SEBI/HO/IMD/DF3/CIR/P/2020/228 dated November 06, 2020 issued directions regarding categorization and rationalization of Mutual Fund Schemes. The said circulars were consolidated as clause 2.6 of the chapter 2 of Master Circular for Mutual Funds dated June 27, 2024 (hereinafter referred as “Master Circular”).
2. To accommodate the continuously evolving landscape of mutual fund investments and the emergence of opportunities across various asset classes, Clause 2.6 of Chapter 2 of the Master Circular stands superseded as under:
2.6 Categories of Schemes, Scheme Characteristics and Type of Scheme (Uniform Description of Schemes):
2.6.1 The Schemes are broadly classified as under:
a. Equity Scheme: Mutual Fund scheme predominantly investing in equity and equity related instruments;
b. Debt Scheme: Mutual Fund scheme predominantly investing in debt and debt related instruments;
c. Hybrid Scheme: Mutual Fund scheme investing in a mix of asset class i.e. equity, debt, InvITs and commodities related instruments as permitted by SEBI.
d. Life Cycle Funds
e. Other Schemes:
i. Fund of Fund Schemes
ii. Passive Schemes for e.g. Index Funds / ETFs
2.6.2 ‘Residual portion’ mentioned in the circular refers to the part of a scheme’s corpus not invested in its main, core asset classes as provided in the scheme characteristics.
2.6.3 The details of the scheme categories under each of the aforesaid groups along with their characteristics and uniform description are as under:
A. Equity Schemes:
| Sr. No. | Category of Schemes | Scheme Characteristics | Type of scheme (uniform description of scheme) |
| 1 | Multi Cap Fund | Minimum investment in equity & equity related instruments – 75% of total assets in the following manner:
a) Minimum investment in equity & equity related instruments of large cap companies – 25% of total assets; b) Minimum investment in equity & equity related instruments of mid cap companies – 25% of total assets; c) Minimum investment in equity & equity related instruments of small cap companies – 25% of total assets |
An open ended equity scheme investing across large cap, mid cap, small cap stocks |
| 2 | Large Cap Fund | Minimum investment in equity & equity related instruments of large cap companies- 80% of total assets | An open ended equity scheme predominantly investing in large cap stocks |
| 3 | Large & Mid Cap Fund | Minimum investment in equity & equity related instruments of large cap companies- 35% of total assets
Minimum investment in equity & equity related instruments of mid cap stocks- 35% of total assets |
An open ended equity
scheme investing in both large cap and mid cap |
| 4 | Mid Cap Fund | Minimum investment in equity & equity related instruments of mid cap companies – 65% of total assets | An open ended equity
scheme predominantly investing in mid cap stocks |
| 5 | Small cap Fund | Minimum investment in equity & equity related instruments of small cap companies- 65% of total assets | An open ended equity
scheme predominantly investing in small cap |
| 6 | Flexi Cap Fund | Minimum Investment in equity & equity related instruments – 65% of total assets | An open ended dynamic
equity scheme investing |
| 7 | Dividend Yield Fund |
Scheme should predominantly invest in dividend yielding stocks.
Minimum investment in equity & equity related instruments – 80% of total assets |
An open ended equity scheme predominantly investing in dividend yielding stocks |
| 8 | Value Fund |
Scheme should follow a value investment strategy.
Minimum investment in equity & equity related instruments – 80% of total assets |
An open ended equity
scheme following a value investment strategy |
| 9 | Contra Fund |
Scheme should follow a contrarian investment strategy.
Minimum investment in equity & equity related instruments – 80% of total assets |
An open ended equity
scheme following contrarian investment strategy |
| 10 | Focused Fund (No. of Stocks) | A scheme focused on the number of stocks (maximum 30)
Minimum investment in equity & equity related instruments – 80% of total assets |
An open ended equity
scheme investing in maximum 30 stocks (mention where the |
| 11 | Sectoral Fund |
Minimum investment in equity & equity related instruments of a particular sector – 80% of total assets. | An open ended equity scheme investing in __
sector (mention the |
| 12 | Thematic Fund | Minimum investment in equity & equity related instruments of a particular theme- 80% of total assets.
A theme may be a combination of two or more sectors. |
An open ended equity scheme investing in __ theme (mention the specific theme) |
| 13 | ELSS – Tax Saver Fund | Minimum investment in equity & equity related instruments – 80% of total assets | An open ended scheme with attributes in accordance with Equity Linked Saving Scheme, 2005 notified by Ministry of Finance |
2.6.3.1 For definition of large cap, mid cap and small cap, clause 2.7 of Master Circular shall be referred.
2.6.3.2 For ESG Funds, para 3.11 of Master Circular shall be referred.
2.6.3.3 In the equity category schemes, Mutual Funds may invest residual portion in equity, money market instruments and other liquid instruments, gold and silver instruments as permitted by SEBI and in InvITs, subject to the ceilings laid out in MF regulations with respect to the respective asset class.
2.6.3.4 Mutual Funds shall be permitted to offer both Value and Contra funds subject to the condition that scheme portfolio overlap between the two schemes shall not be more than 50%.
2.6.3.5 For any scheme offering in sectoral/thematic equity category, Mutual Funds shall ensure that no more than 50% of the schemes portfolios would overlap with other equity schemes in sectoral/thematic category and other equity schemes categories except for large cap scheme.
2.6.3.6 The overlap condition shall be computed on a quarterly basis using the daily portfolio overlap values i.e. the average of daily portfolio overlap values over a quarter. Detailed methodology for computing portfolio overlap is provided at Annexure A to this circular.
2.6.3.7 Existing sectoral/thematic schemes shall ensure compliance with regard to portfolio overlap limits within 3 years from the date of this circular. Schemes unable to meet the portfolio overlap criteria after 3 years shall be mandatorily merged with other schemes as per applicable provisions.
2.6.3.8 In order to realign the portfolio in terms of the limit as mentioned at 2.6.3.5 above, the following glide path may be adopted by mutual funds:
| Period | Realignment expected |
| Year 1 | 35% of the excess overlap |
| Year 2 | Additional 35% |
| Year 3 | Remaining 30% |
2.6.3.9 Mutual Funds shall launch sectoral/thematic funds as per the list of sectors/themes as published and updated by AMFI in consultation with SEBI on half yearly basis.
B. Debt Schemes
| Sr. No. | Category of Schemes | Scheme Characteristics | Type of scheme (uniform description of scheme) |
| 1 | Overnight Fund** |
Investment in overnight securities having maturity of 1 day Overnight funds can deploy, not exceeding, 5% of the net assets of the scheme in G-secs and/or T-bills with a residual maturity of upto 30 days for the purpose of placing the same as margin and collateral for certain transactions. | An open ended debt scheme investing in overnight securities |
| 2 | Liquid Fund $ ** | Investment in only Debt and money market securities with maturity of upto 91 days | An open ended liquid scheme |
| 3 | Ultra Short Term Fund | Investment in Debt & Money Market instruments such that the Macaulay duration of the portfolio is between 3 months to 6 months | An open ended ultra-short term debt scheme investing in instruments such that the Macaulay duration of the portfolio is between 3 months to 6 months |
| 4 | Ultra Short to Short Term Fund |
Investment in Debt & Money Market instruments such that the Macaulay duration of the portfolio is between 6 months to 12 months | An open ended debt
scheme investing in portfolio is between 6 |
| 5 | Money Market Fund | Investment in Money Market instruments having maturity up to 1 year | An open ended debt scheme investing in money market instruments |
| 6 | Short Term Fund | Investment in Debt & Money Market instruments such that the Macaulay duration of the portfolio is between 1 year to 3 years | An open ended short term debt scheme investing in instruments such that the Macaulay duration of the portfolio is between 1 year to 3 years |
| 7 | Medium Term
Fund |
Investment in Debt & Money Market instruments such that the Macaulay duration of the portfolio is between3 years to 4 years.Portfolio Macaulay duration underanticipated adverse situation is 1 year to 4 years |
An open ended medium term debt scheme investing in instruments such that the Macaulay duration of the portfolio is between 3 years
to 4 years |
| 8 | Medium to
Long Term Fund |
Investment in Debt & Money Market instruments such that the Macaulay duration of the portfolio is between4 to 7 years. Portfolio Macaulay duration under anticipated adverse situation is 1 year to 7 years |
An open ended medium term debt scheme investing in instruments such that the Macaulay duration of the portfolio is between 4 years to 7 years |
| 9 | Long Term Fund | Investment in Debt & Money Market Instruments such that the Macaulay duration of the portfolio is greater than 7 years | An open ended debt
scheme investing in |
| 10 | Dynamic Term Fund | Investment across duration | An open ended dynamic debt scheme investing across duration. |
| 11 | Corporate Bond Fund | Minimum investment in corporate bonds – 80% of total assets (only in AA+ and above rated corporate bonds) @ |
An open ended debt
scheme predominantly |
| 12 | Credit Risk Fund | Minimum investment in corporate bonds – 65% of total assets (only in AA and below rated corporate bonds) @ | An open ended debt scheme predominantly investing in AA and below rated corporate bonds (excluding AA+ rated corporate bonds) |
| 13 | Banking and PSU Debt Fund | Minimum investment in Debt instruments of banks, Public Sector Undertakings, Public Financial Institutions and Municipal Bonds – 80% of total assets @ | An open ended debt scheme predominantly investing in Debt instruments of banks, Public Sector Undertakings, Public Financial Institutions and Municipal Bonds |
| 14 | Gilt Fund | Minimum investment in G-secs- 80% of total assets (across maturity) | An open ended debt
scheme investing in government securities |
| 15 | 10-year Constant Maturity Gilt Fund |
Minimum investment in G-secs- 80% of total assets such that the Macaulay duration of the portfolio is equal to 10 years | An open ended debt scheme investing in government securities having a constant maturity of 10 years |
| 16 | Floating
Interest Rates |
Minimum investment in floating rate instruments (including fixed rate instruments converted to floating rate exposures using swaps/derivatives)- 65% of total assets @ | An open ended debt scheme predominantly investing in floating rate instruments (including fixed rate instruments converted to floating rate exposures using swaps/derivatives) |
| 17 | Sectoral Fund | Minimum investment in debt & debt
related instruments of a particular Sectoral Debt Funds may be launched in following sectors: Financial Services, Energy, Infrastructure, Housing, Real Estate. |
An open ended debt
scheme investing in __ |
**Provision as mentioned at Paragraph 8.4.5 of Master Circular shall be followed for Uniform cut-off timings for applicability of Net Asset Value in respect of Liquid Fund and Overnight Fund.
$ All provisions mentioned at Paragraph 1.13, 8.4.2.1.c, 12.6 of Master Circular in respect of liquid schemes shall be applicable.
Concept of Macaulay’s Duration shall be explained in the scheme information document. It is clarified that Macaulay duration shall be mentioned at portfolio level.
@ For asset allocation limits considering minimum liquid assets requirement, refer Paragraph 4.6 of Master Circular. For exclusion of investment in units of CDMDF from asset allocation limits, please refer Paragraph 2.10 of Master Circular.
2.6.3.10 With respect to the Medium Term Fund and Medium to Long Term Fund, the characteristics of the scheme shall remain the same under normal circumstances. However, the fund manager, in the interest of investors, may reduce the portfolio duration of the aforementioned schemes up to one year, in case he has a view on interest rate movements in light of anticipated adverse situation. The AMC shall be required to mention its asset allocation under such adverse situation in its scheme information documents.
2.6.3.11 Whenever the portfolio duration is reduced below the specified floors of 3 years and 4 years in respect of Medium Term Fund and Medium to Long Term Fund respectively, the AMC shall be required to record the reasons for the same with adequate justification and maintain the same for inspection. The written justifications shall be placed before the Trustees in the subsequent Trustee meeting. Further, the Trustees shall also review the portfolio and report the same in their Half Yearly Trustee Report to SEBI.
2.6.3.12 Sectoral debt scheme shall be offered after ensuring that there is sufficient availability of investment grade paper in market for the sectors in which sectoral debt fund is offered by the respective AMC.
2.6.3.13 Sectoral exposure limits as outlined in clause 12.9.1 of the Master Circular shall not be applicable to the sectoral debt funds.
2.6.3.14 Mutual Funds may invest the residual portion of debt category schemes in InvITs except for Overnight Fund, Liquid Fund, Ultra-Short Duration Fund, Low Duration Fund and Money Market Fund, subject to the ceilings laid out in MF regulations.
C. Hybrid Schemes
| Sr. No. | Category of
Schemes |
Scheme Characteristics | Type of scheme (uniform description of scheme) |
| 1 | Conservative Hybrid Fund |
Investment in equity & equity related instruments- between 10% and 25% of total assets; Investment in Debt instruments-between 75% and 90% of total assets |
An open ended hybrid
scheme investing predominantly in debt |
| 2 | Balanced Hybrid Fund | Equity & Equity related instruments – between 40% and 60% of total assets;
Debt instruments – between 40% and 60% of total assets No Arbitrage would be permitted in this scheme |
An open ended balanced scheme investing only in equity and debt instruments. No Arbitrage is permitted in this scheme. |
| 3 | Aggressive Hybrid Fund |
Equity & Equity related instruments- between 65% and 80% of total assets;
Debt instruments- between 20% 35% of total assets |
An open ended hybrid scheme investing predominantly in equity and equity related instruments |
| 4 | Dynamic Asset Allocation Fund | Investment in equity/ debt that is managed dynamically | An open ended dynamic
asset allocation fund |
| 5 | Multi Asset
Allocation |
Invests in at least three asset classes with a minimum allocation of at least 10% each in all three asset classes | An open ended scheme investing in ___,__ ,__ (mention the three different asset classes) |
| 6. | Arbitrage Fund | Scheme following arbitrage strategy.
Minimum investment in equity & equity related instruments – 65% of total assets. Asset allocation in case of defensive consideration shall be stated in the SID. Exposure in debt instruments shall be limited to government securities with maturity less than 1 year as well as repo of government bonds only. |
An open ended scheme investing in arbitrage opportunities. No investment in InvITs permitted. |
| 7. | Equity Savings | Minimum investment in equity & equity related instruments- 65% of total assets.
Net equity exposure- 15%-40% of total assets Minimum Investment in debt10% of total assets. Maximum Arbitrage exposure has to be stated in the SID. Minimum hedged & unhedged exposure to be stated in the SID. Asset Allocation under defensive considerations may also be stated in the Offer Document |
An open ended scheme investing in equity, arbitrage and debt |
2.6.3.15 In the hybrid category schemes, Mutual Funds may invest residual portion in InvITs (except for arbitrage funds), ETCDs, Gold ETFs and Silver ETFs, subject to the ceilings laid out in MF regulations w.r.t the respective asset class.
2.6.3.16 Solution Oriented Schemes: Solutions oriented scheme category is being discontinued w.e.f the date of the circular. Existing schemes in this category shall stop all subscriptions with immediate effect. Such schemes shall be merged with any other scheme having similar asset allocation and risk profile with prior approval from SEBI.
2.6.3.17 Foreign securities will not be treated as a separate asset class.
D. Life Cycle Funds
| Sr. No | Category of Schemes | Scheme Characteristics | Type of scheme (uniform description of scheme) |
| 1 | Life Cycle Funds | Scheme following glide path strategy based investing across various asset classes i.e. Equity, Debt, InvITs, ETCDs, Gold & Silver ETF.
Detailed structure placed at Annexure B |
An open ended fund with attributes of pre- determined maturity and glide path for goal based investing. |
E. Other Schemes:
| Sr. No | Category of Schemes | Scheme Characteristics | Type of scheme (uniform description of scheme) |
| 1 | Index Funds/ ETFs | Minimum investment in securities of a particular index (which is being replicated/ tracked)- 95% of total assets |
An open ended scheme replicating/ tracking __ index |
| 2 | FoFs (Overseas/ Domestic) | Minimum investment in the underlying fund- 95% of total assets |
An open ended fund of fund scheme investing in fund (mention the underlying funds) |
2.6.4 For FoFs with multiple underlying, framework issued vide communication dated June 30, 2025 (Annexure C) to AMFI shall be referred.
2.6.5 For easy identification by investors, in order to bring uniformity in names of schemes for a particular category across Mutual Funds and to ensure that schemes remain “true-to-label”, the scheme name shall be the same as the scheme category. Words/ phrases that highlight/ emphasize only the return aspect of the scheme shall not be used in the name of the scheme. Further, the ‘type of scheme’ (mentioned below the scheme name in the offer documents/ advertisements/ marketing material/etc.) should adhere to the description given in the third column of the tables, as applicable.
2.6.6 Clause 1.4.1 of the Master Circular stands deleted.
2.6.7 Pursuant to the issuance of this circular, the nomenclature, investment objective, investment strategy, benchmark and other parameters of each scheme shall be suitably modified (wherever applicable) to bring it in line with the categories of schemes listed above. Such changes shall not be considered as fundamental attribute change. Existing schemes shall comply with the provisions of this circular within 6 months from its date of issuance.
2.6.8 Mutual Funds shall disclose category wise portfolio overlap levels i.e. equity scheme vs other equity schemes, debt scheme vs other debt schemes and hybrid vs other hybrid schemes. Such disclosure shall be published on AMC website for investor communication on a monthly basis. Detailed Methodology for computing portfolio overlap is provided at Annexure A to this circular.
3. This circular shall come into force with effect from the date of this circular.
4. This Circular is issued in exercise of the powers conferred by Section 11(1) of the Securities and Exchange Board of India Act, 1992 read with Chapter VI-C of the SEBI (Mutual Funds) Regulations 1996 to protect the interest of investors in securities and to promote the development of, and to regulate the securities market.
5. This Circular is available at sebi.gov.in under the link “Legal ->Circulars”.
Yours sincerely,
Anupma Chadha General Manager
Investment Management Department
+91-22-26449319
anupmac@sebi.gov.in
