Overlap Game Over? SEBI Caps Thematic Mutual Fund Overlap at 50%
Is the mutual fund “overlap game” finally over?
Because for years, one problem quietly existed.
The same stock… across multiple funds.
Different names. Different schemes.
But almost identical portfolios.
Now, SEBI has stepped in.
What Is the New SEBI Rule?
Effective February 26, 2026, SEBI has mandated that sectoral and thematic equity schemes must cap portfolio overlap at 50% relative to other equity schemes (excluding large-cap funds).
That means:
- A thematic fund cannot have more than 50 per cent overlap with another scheme
- Duplicate exposure across schemes' portfolios is now limited
- Fund differentiation becomes mandatory
What Does “Overlap” Actually Mean?
If two thematic funds hold the same stocks in similar proportions, that is called overlap.
Earlier:
- Some schemes had 80–90% overlap
- Investors thought they were diversified
- But in reality, they were not
Now?
No more than 50% of a thematic equity scheme's portfolio must overlap with other equity schemes.
Why This Rule Matters
This is not just technical.
It directly affects how your money is invested.
1. Real Diversification
Different funds will now actually be different.
2. Reduced Risk Concentration
No single stock can dominate multiple schemes portfolios.
3. Better Fund Strategy
Each scheme must justify its existence.
Monthly Disclosure Requirement
This is where transparency comes in.
Asset management companies are now required to disclose these portfolio overlaps monthly on their websites.
This means:
- Investors can track overlap easily
- No hidden duplication
- More informed decisions
What About Existing Schemes?
This rule does not force immediate changes.
But there is a timeline.
Existing schemes have a 3-year window to comply with these limits or will face mandatory mergers with other schemes.
So:
- Funds must adjust portfolios gradually
- Or merge if they fail to differentiate
What This Means for Investors
This is where things get interesting.
Earlier:
- Buying multiple thematic funds often meant buying the same stocks
Now:
- Portfolio overlap is controlled
- True diversification becomes possible
- Fund selection becomes more meaningful
Final Thought
SEBI has capped thematic overlap at 50%.
A simple rule.
But a powerful one.
Because now…
Different funds will finally mean different investments.
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