Context:
India’s market regulator, the Securities and Exchange Board of India (Sebi), has begun closely scrutinising new fund offers (NFOs) for portfolio overlap with existing schemes, even as its draft proposals on the issue are yet to be notified.
Key proposals in the consultation paper
Cap on portfolio overlap
- Sectoral and thematic schemes:
- Maximum 50% stock overlap with other equity schemes within the same AMC
- Exception: Large-cap schemes
- Objective: Ensure clear differentiation among schemes
Value and contra funds
- Sebi proposes allowing AMCs to offer both value and contra funds
- Condition:
- Portfolio overlap between the two must not exceed 50%
- Monitoring:
- At the time of NFO deployment
- Thereafter semi-annually, using month-end portfolios
Corrective actions if overlap breaches limits
If overlap exceeds permitted levels:
- AMC must rebalance portfolios within 30 business days
- Possible extension of another 30 days with investment committee approval
- If breach persists:
- Investors must be given an exit option without exit load
