SEBI Categorisation — What Changed in 2026
SEBI redid its scheme categorisation in 2026. This lesson lists what changed from the 2017 framework: the number of categories, new and renamed categories, higher equity minimums, the overlap rule and the naming rule, so that older material can be read correctly.
Where the rules sit
The categorisation was redone by SEBI's circular of 26 February 2026, which is now Chapter 3 of the Master Circular for Mutual Funds. It is not part of the SEBI (Mutual Funds) Regulations, 2026, which came into force on 1 April 2026.
Existing schemes had to comply by 26 August 2026. A scheme's name must match its category, so the label tells investors which portfolio rule the scheme follows.
What changed in the list
The number of categories rose from the 36 set in 2017 to 40. Two notable additions are Life Cycle Funds, built around a target date, and Sectoral Debt Funds, which hold at least 80% in bonds rated AA+ and above from one of five named sectors. Solution-oriented funds are no longer listed as a category.
Several debt categories were renamed. The old Low Duration corresponds to the Ultra Short to Short Term Fund, and Dynamic Bond to the Dynamic Term Fund. Liquid, Large Cap and Gilt funds already existed under the 2017 framework.
What changed in the portfolio rules
Value, Contra, Dividend Yield and Focused funds must now hold at least 80% in equity; the 2017 minimum was 65%.
A fund house may now offer both a Value Fund and a Contra Fund if their portfolios overlap by no more than 50%; earlier it could offer only one of the two. Sectoral and thematic funds are separately capped at 50% overlap with other equity schemes.
The size list and the benchmark
The list that sorts companies into large, mid and small cap is published by AMFI, not SEBI, every six months, and funds rebalance within a month.
Scheme performance is compared with the Total Return Index of its benchmark, which counts dividends paid by the index's companies as well as price changes. The first-tier benchmark reflects the scheme's category. Because every scheme in a category follows the same rule and is measured against a like index, schemes can be compared like for like.
Reading older material
Books, articles and notes written before 2026 describe the 2017 framework: 36 categories, a 65% minimum for Focused funds, names such as Low Duration and Dynamic Bond. These are history, not the current rule.
Rules at a glance
An old book and a current factsheet (illustrative)
Naveen, 26, a student in Jaipur, reads an older textbook that speaks of 36 categories, a Low Duration Fund and a 65% equity minimum for Focused funds. A current factsheet he picks up shows a scheme labelled Ultra Short to Short Term Fund.
The textbook and the factsheet are describing the same 6 to 12 month duration band; the textbook uses the superseded name. The current figures are 40 categories and an 80% equity minimum for Focused funds.
Key points
- The categorisation was redone by SEBI's circular of 26 February 2026 (Master Circular, Chapter 3): 40 categories in place of the 36 set in 2017.
- Existing schemes had to comply by 26 August 2026, and a scheme's name must match its category.
- Life Cycle Funds and Sectoral Debt Funds are new categories.
- The old Low Duration corresponds to Ultra Short to Short Term, and Dynamic Bond to Dynamic Term.
- Value, Contra, Dividend Yield and Focused funds: minimum equity raised from 65% to 80%.
- A fund house may offer both a Value and a Contra fund if portfolio overlap is no more than 50%.
- Performance is compared with the Total Return Index of the scheme's benchmark.
Common misunderstandings
- The 2026 categorisation is not in the SEBI (Mutual Funds) Regulations, 2026: it comes from SEBI's circular of 26 February 2026 and the Master Circular.
- Low Duration and Dynamic Bond are not current names: they correspond to Ultra Short to Short Term and Dynamic Term.
- The 65% minimum for Value, Contra, Dividend Yield and Focused funds is outdated: it is now 80%.
- The benchmark comparison is not against a price-only index: it uses the Total Return Index, which includes dividends.
- SEBI does not publish the large, mid and small cap list: AMFI does, every six months.
Questions people ask
What rule applies to the name of a scheme?
The name must match the scheme's category. The requirement comes from SEBI's circular of 26 February 2026, and existing schemes had to comply by 26 August 2026.
Which categories were newly introduced in 2026?
The Sectoral Debt Fund and the Life Cycle Fund are the notable new categories. Liquid, Large Cap and Gilt funds already existed under the 2017 framework.
Why is the Total Return Index used for comparison?
It counts dividends paid by the index's companies as well as price changes, so the benchmark's return is measured in full.
What this lesson relies on
- SEBI circular of 26 February 2026 on categorisation of mutual fund schemes
- SEBI Master Circular for Mutual Funds (20 March 2026) — Chapter 3 (categorisation); benchmarking against the Total Return Index
- SEBI (Mutual Funds) Regulations, 2026 (in force 1 April 2026)
This lesson was reviewed independently against these sources on 8 October 2026. Rules change: check the current regulation, scheme document or policy wording before relying on any figure. This is education, not advice.