SEBI’s Twin‑Fund Proposal: What It Means

SEBI’s Twin‑Fund Proposal: What It Means

On July 18, 2025, the Securities and Exchange Board of India (SEBI) issued a draft circular proposing that mutual fund houses be allowed to launch a second scheme within the same fund category—for example, two large‑cap funds—only if:

• The original scheme is at least five years old

• It has over ₹50,000 crore in AUM

This marks a potential shift after SEBI's 2017 categorisation reforms, which restricted each Asset Management Company (AMC) to offering just one scheme per category.

Potential Benefits

1. Cap on bloated portfolios: Large-cap funds tend to become sluggish as they grow. A “Series 2” could offer a more nimble alternative while preserving the strategy of the original fund.

2. Expense ratio control: SEBI mandates that the new scheme’s Total Expense Ratio (TER) cannot exceed the TER disclosed by the original scheme at its NFO date.

3. Investor choice without compromise: Those seeking stability can stay with the large, mature scheme; those desiring flexibility can opt for the newer variant.

Risks & Concerns

• Confusing sameness: Two funds from the same AMC in one category may appear identical to investors, undermining trust. Critics argue this dilutes the gains from fund rationalisation efforts since 2017.

• SIP disruption: If the original scheme stops accepting fresh subscriptions, existing Systematic Investment Plans (SIPs) could be disrupted. This unpredictability could erode investor strategy and discipline unless carefully managed.

• Orphaned legacy funds: Once closed to new inflows, older schemes might wither due to redemptions, further reducing returns and attention. SEBI does allow mergers, but critics say this may be too late once damage sets in.

• Lack of differentiation: SEBI requires the second scheme to match the first in strategy and investment style. This restriction eliminates strategic variety, such as launching a value‑oriented mid‑cap alongside a quality‑focused one.

What the Experts Say

• Amol Joshi (PlanRupee): “A step back from categorisation and rationalisation efforts. Multiple schemes in one category undo years of aligned structure.” 

• Sachin Jain (Scripbox): “Without clear differentiation, two large‑cap funds from same AMC confuse investors and cause performance divergence.”

• Santosh Joseph (Germinate Investment Services) welcomes the flexibility: “This gives AMCs room to address different investor needs—stability or agility.” 

Timeline & Next Steps

• Public comments are open until August 8, 2025, after which SEBI will finalize the rules.

Final Thoughts: Clarify or Confuse?

This initiative reflects a balancing act in India’s fast‑evolving mutual fund system:

• Pro‑clarity: For investors mindful of fund size and flexibility, a second scheme may offer a valuable alternative — assuming transparent communication from AMCs and distributors.

• Prone to confusion: Without clear naming, disclosure, and SIP transition guidance, retail investors may misinterpret similarity for sameness, risking unintended drift and planning disruption.

Blog Outline You Can Use

1. Introduction: context and background

2. Policy snapshot (criteria, draft date, consultation timeline)

3. Advantages: nimble funds, TER cap, investor flexibility

4. Risks: confusion, SIP continuity issues, orphan fund scenario

5. Industry perspective: balance of welcoming and wary voices

6. Investor action: what to watch for as AMCs roll out new funds

7. Conclusion: reiterating need for transparency and choice