SEBI Weighs Allowing A Second Mutual Fund Scheme Per Category

While the primary objective of ensuring that nimbleness and flexibility of a mutual fund scheme is maintained, the change, if approved, could create some problems.

Currently, investors already navigate a vast number of options when it comes to schemes and strategies to invest in. As per data from AMFI in June the number of schemes offered have crossed the 1,790 mark. The introduction of more schemes within the same category could push this number significantly higher.

Kirtan A Shah, founder and CFP of Credence Wealth, took to X and flagged a few concerns that implications mat entail for investors.

“As per the new SEBI consultation paper, AMCs will be able to start a new fund under the same category if the old fund is five years old and has more than 50,000 crore of AUM. Which means there can be 2 Midcap funds offered by the same AMC,” Shah highlighted.

He further elaborated on the potential ramifications, noting, “The 2nd fund can have a different fund manager but same TER as the old fund and as soon as you launch the second fund, the first fund will stop taking new investments.”

Shah concludes with a warning for investors, “If I was an investor in the first fund, I will pull off my investments because the fund can only see redemptions and no inflows (barring SIPs, I am assuming), this should hurt the performance of the original old fund.” This hints that the proposal creates a potential challenge for AMCs in managing the stability of their older funds under the proposed framework.

Of course, the proposal could see more tweaks based on feedback from the mutual fund industry.