SEBI to issue draft circular on MF Scheme simplification soon, say sources

Currently there are 5 broad categories of mutual funds with around 36 sub categories of mutual funds. A recent concern that has been raised is that many a times the scheme of mutual funds are such that, they are difficult to understand and create a confusion

Market regulator Securities and Exchange Board of India (SEBI) is likely to issue draft circular on simplification of classification of mutual fund schemes. As per industry sources, the draft paper is expected this week.

The purpose of the simplification is to make the investors understand the product or the scheme they are investing.

At the April 2025, 17th Mutual Fund Summit hosted by the Indian Chamber of Commerce, Manoj Kumar, executive director, SEBI had noted that the regulator was in the process of reviewing the entire mutual fund regulatory framework to enhance ease of doing business for all stakeholders, including the regulator. This included actively reviewing scheme categorisation norms to make them more intuitive for investors, while ensuring all offerings remain "true to label" to prevent mis-selling.

What does True to Label mean?

Currently there are 5 broad categories of mutual funds with around 36 sub categories of mutual funds. A recent concern that has been raised is that many a times the scheme of mutual funds are such that, they are difficult to understand and create a confusion. For example, words like Opportunity, Dynamic, Emerging etc. do not provide investors with a complete picture on what the investment intention of the fund is and may lead to mis-selling.

The regulatory intent of simplification and ensuring that schemes remain true to label is, to ensure that mutual funds are easy to understand for common people and if people don't understand the scheme, risk etc then it will be difficult for them to invest.

India's mutual fund AUM has crossed Rs 74 lakh crore but it still forms only about 20 per cent of GDP, compared to a global average of 65 per cent. In June, total mutual fund folios reached 24.13 crore as of June 2025. Within this, retail mutual fund folios across equity, hybrid, and solution-oriented schemes rose to 19.07 crore in June, from 18.84 crore in May. Retail AUM across these schemes stood at Rs 43.99 lakh crore in June 2025, compared to Rs 42.2 lakh crore in May. The SIP AUM also surpassed the Rs 15 trillion milestone in June 2025.

In recent years the mutual funds have become a very popular vehicle of investment. SEBI and mutual fund association AMFI has also launched micro-SIPs so that the people in even lower strata of the society can invest and make their participation in the capital market and benefit from the growth of the market.

To offer wider choice to investors, the regulator has approved a new product category, referred to as SIF, aimed at investors with ticket sizes between Rs 10 lakh and Rs 50 lakh.

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