SEBI's blockbuster reforms are rewriting the rules of mutual fund investing -- faster growth, sharper transparency, and smarter safeguards that put investors first, explains Ramalingam Kalirajan.
Mutual funds have become the go-to choice for millions of Indian investors -- from first-time earners looking for SIPs to seasoned professionals diversifying their portfolios.
But with rapid growth also comes responsibility.
Think about it: If lakh of crores of rupees are flowing into mutual funds every year, shouldn't investors know exactly where their money is going and how it's being managed?
That's precisely why SEBI has stepped in.
The goal is simple -- make mutual funds more transparent, investor-friendly, and efficient.
By introducing new regulations, SEBI isn't just tightening rules for fund houses; it's giving investors more confidence that their money is being handled responsibly.
So, are these changes just more paperwork, or do they really benefit you? Let's look closer.
1. Faster Deployment of New Fund Offers (NFOs)
Imagine giving money to a mutual fund company during an NFO, expecting it to grow, only to find out it's lying idle in their account while they 'wait for the right time' to invest. Frustrating, isn't it?
Your money is doing nothing while inflation is silently eating into its value.
SEBI's new rule fixes this by mandating that NFO money must be deployed within 30 business days.
If the fund house fails to invest within this timeline, you, the investor, can walk away -- without paying any exit load.
This is a big win for retail investors.
It ensures that your hard-earned money starts compounding faster instead of sitting idle.
After all, isn't time the most powerful factor in wealth creation?
2. Mandatory Employee Skin-in-the-Game
Here's a rule that changes the game completely: fund managers and key employees must now invest part of their own salaries in the schemes they manage.
Why does this matter? Let's use an analogy.
Would you ever trust a chef who refuses to eat their own food? Probably not.
Similarly, if fund managers don't put their own money where their mouth is, why should you?
With this rule, fund managers now share the same risks and rewards as investors.
If the fund performs poorly, they feel the pinch too.
This alignment of interest encourages better decision-making, more accountability, and, ultimately, more trust in the system.
Doesn't it feel reassuring to know that the person managing your money has their own money on the line too?
3. Stress Test Results: Transparency for Investors
Markets are unpredictable -- a sudden downturn, a credit crisis, or even a global shock can test the resilience of mutual funds.
But how do you know if your chosen fund can handle such stress? Until now, you couldn't.
That's changing. SEBI now requires all funds to publish stress test results.
These tests reveal how quickly a fund can liquidate its assets and convert them into cash during times of financial pressure.
For example, if a debt fund holds too many illiquid securities, the stress test will expose this weakness upfront.
As an investor, you can then make an informed decision before committing your money.
Isn't it far better to see a fund's stress-handling ability in black and white rather than being caught off-guard during a crisis?
4. Flexibility in Nominations: Up to 10 Nominees
One of the most overlooked aspects of investing is estate planning -- what happens to your money if something happens to you?
SEBI has made this process far more flexible.
Now, investors can appoint up to 10 nominees per scheme, with the freedom to allocate specific percentages to each.
Want to leave 40% to your spouse, 30% to your child, and 30% to your parents? That's possible.
And if you don't want to nominate anyone, you'll need to submit a declaration.
This avoids confusion later and ensures that your investments don't get stuck in legal disputes.
Isn't it comforting to know that your wealth can be distributed exactly the way you want -- smoothly and without conflict?
5. Specialised Investment Funds (SIF): A New Era
Diversification has always been the golden rule of investing -- but how far can you diversify within traditional mutual funds?
This is where Specialised Investment Funds (SIFs) come in.
SEBI has introduced these funds with a minimum investment requirement of Rs 10 lakh, clearly targeting high-net-worth investors (HNIs) and experienced individuals.
What makes SIFs exciting is their flexibility: they can invest not just in company stocks but also in derivatives (futures and options), real estate, and even gold.
In simple terms, these funds act like customised mini-portfolios that spread risk across multiple asset classes.
Imagine having exposure to equity, property, and commodities through a single fund -- doesn't that sound like a more balanced approach to wealth creation?
While the entry barrier is high, this innovation opens up new possibilities for those who want to diversify beyond the usual mix of equity and debt.
Could SIFs become the next big trend for smart diversification? Only time will tell.
6. Fund Category Reclassification: Value and Contra Funds Together
Traditionally, SEBI allowed each mutual fund house to launch either a Value fund or a Contra fund -- but not both.
This often left investors with limited choices.
That restriction has now been lifted.
Mutual fund houses can offer both Value and Contra funds simultaneously, giving investors more options to align with their investment style.
But SEBI has also placed safeguards to prevent overlap and risk concentration.
No single stock can account for more than 50% of the combined portfolios.
If this limit is breached, the fund must adjust within 30-60 days. If not, investors can exit without any penalty or exit load.
This change means more flexibility for investors while maintaining protection.
Do you prefer the disciplined approach of Value investing or the contrarian bets of Contra funds?
With this rule, you no longer have to choose -- you can explore both.
7. Equity Market-Linked Funds: Higher Allocation to Stocks
Here's a big shift: equity funds must now invest at least 75% in Indian stocks, up from the earlier minimum of 65%.
At first glance, this may sound like just a number, but think about what it means for you as an investor.
With more exposure to equities, these funds will carry higher risk -- especially in the short term -- but also offer the potential for greater long-term returns.
For investors already in multi-cap funds, this change won't make much difference since those funds already maintain a 75% equity allocation.
But for other categories, it does mean more volatility.
The key question is: are you willing to accept sharper ups and downs in your portfolio today in exchange for potentially higher wealth tomorrow?
8. Debt Market Funds: Expanding into REITs and InvITs
Debt funds have long been seen as the 'safer' cousin of equity funds, offering stability but relatively lower returns.
But now, SEBI is shaking things up.
Debt funds will be allowed to invest in Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (InvITs).
This means your debt fund could now give you exposure to real estate and infrastructure -- asset classes that were previously out of reach within traditional debt schemes.
The advantage? Diversification.
Instead of directly investing in REITs or InvITs (which carry higher risks), you gain exposure through debt funds, where the risk is spread across multiple holdings.
Of course, this also means debt funds will no longer be 'risk-free.'
But isn't a little extra risk acceptable if it comes with the possibility of enhanced returns and broader exposure?
9. Clearer Labelling with 'Term' in Debt Funds
Ever picked up a debt fund and struggled to figure out whether it's meant for 6 months, 3 years, or 10 years? You're not alone.
Debt fund names often left investors guessing.
SEBI has now made it mandatory for funds to include the word 'Term' in their names to reflect the maturity period of the securities they hold. For example:
- Ultra Short-Term Fund
- Short-Term Fund
- Medium-Term Fund
- Long-Term Fund
This may seem like a small change, but it brings big clarity.
Investors can now understand at a glance what kind of horizon the fund is designed for.
Isn't it refreshing to finally have fund names that actually mean what they say?
10. Hybrid and Arbitrage Funds: Reduced Risk, More Options
Earlier, hybrid and arbitrage funds had fairly limited avenues for diversification.
With SEBI's new reforms, arbitrage funds can now park money in repos, short-term instruments, and government securities.
This means they're no longer restricted to just equity arbitrage opportunities, giving them more stability in volatile markets.
Hybrid funds, on the other hand, can now include REITs (Real Estate Investment Trusts) and InvITs (Infrastructure Investment Trusts).
Why is this important?
Because it allows investors indirect access to real estate and infrastructure growth -- sectors that were once difficult to participate in without huge capital.
For investors, this translates to lower risk, wider exposure, and better diversification.
Cautious investors or those nearing retirement can particularly benefit, since these funds can balance safety with reasonable returns.
11. New Fund Categories: Weddings, Housing, and Retirement
One of the most interesting reforms SEBI is pushing forward is the idea of goal-based mutual funds.
Instead of choosing a random equity or debt scheme, you could soon invest in a fund that's designed for a specific life goal.
For example:
- A Children's Wedding Fund, where the maturity aligns with your child's wedding year.
- A Home-Buying Fund, structured to help accumulate a down payment within 10-15 years.
- A Retirement Fund with a 30-year glide path -- where your money stays mostly in equity (24 years), then gradually shifts into safer debt instruments (last 3 years) before maturity.
This kind of structure can simplify financial planning for ordinary investors who don't want to micromanage asset allocation.
Imagine just picking a fund named after your goal, investing regularly, and letting the structure itself guide your money toward that outcome.
It's like 'auto-pilot' investing for your dreams.
What These Changes Mean for You
Taken together, these reforms show how India's mutual fund industry is evolving into a more transparent, investor-friendly ecosystem.
From faster NFO deployment and stricter equity allocation to safer hybrid structures and goal-based funds, the focus is clear -- to empower investors and reduce hidden risks.
But here's the key takeaway: these reforms alone won't change your financial future. It's about how you adapt your strategy to leverage them.
- Will you use arbitrage funds as a safe haven during volatility?
- Will you try goal-based funds to simplify your planning?
- Or, will you stick to traditional choices and risk missing out?
The opportunity is there -- but the decision is yours.
- You can ask rediffGURU Ramalingam Kalirajan your questions HERE.
Ramalingam K, an MBA in Finance, is a Certified Financial Planner. He is the Director and Chief Financial Planner at holisticinvestment, a leading financial planning and wealth management company.
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