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Summary: Until now, fund houses have been allowed to offer only one scheme per category. But SEBI's new proposal could allow an AMC to launch a second scheme in the same category—if the first one is already massive. We explore the likely rationale, the pros and cons and the nine funds that could have a Series 2.
Since SEBI's landmark mutual fund re-categorisation in 2017, fund houses have been restricted to offering only one scheme per category (with a few exceptions). For instance, a fund house can launch only one large-, mid- and small-cap funds. The regulator did that to simplify choices and reduce confusion.
But now, SEBI is considering a thoughtful tweak to that rule.
According to a new proposal, fund houses may soon be allowed to launch an additional scheme in the same category, but only if the existing scheme is both:
- More than five years old, and
- Has net assets of over Rs 50,000 crore.
In other words, only funds that have become very large and well-established may qualify for a ‘Series 2’ version.
Why SEBI may be doing this
At first glance, a huge fund size sounds like a good thing. But once a scheme crosses a certain size, especially in less liquid spaces like mid or small caps, it can be tough for the fund manager to find enough good investment opportunities. That can hurt performance.
SEBI’s proposal to allow a second scheme in the same category (if the original crosses Rs 50,000 crore in assets and is at least five years old) seems designed to solve exactly this problem.
Here’s how:
1. Keeps the fund nimble: Large funds can get slow and clunky. A new Series 2 version allows the fund manager to take sharper investment calls without worrying about moving thousands of crores.
2. Protects existing investors: Long-term investors in the original scheme won’t have to suffer from bloated portfolios or changes in style just to accommodate inflows.
3. Prevents an explosion of lookalike funds: SEBI hasn’t thrown the doors open. It’s set a high bar: only schemes with over Rs 50,000 crore in AUM and a five-year track record can spawn a sibling. That ensures only well-run, trusted funds are allowed this exception.
Currently, there are just 9 funds that can choose to spawn a Series 2 scheme, in case SEBI’s proposals are put into effect. They are:
- ICICI Prudential Large Cap
- SBI Bluechip (Large cap)
- PPFAS Flexi Cap
- HDFC Flexi Cap
- Kotak Flexi Cap
- HDFC Mid-Cap ;
- Kotak Emerging Equity (Mid cap)
- Nippon India Small Cap
- ICICI Prudential Value Discovery
4. Maintains consistency: As per the proposal, the second scheme must follow the same investment strategy, allocation and style as the original. That keeps things simple for investors and prevents confusion.
What are the possible concerns?
1. Could confuse investors: Even with labels like ‘Series 1’ and ‘Series 2’, two funds with the same name and strategy from the same AMC (fund house) might still confuse investors, especially new ones.
2. Different fund manager, different approach: The AMC may have the option to appoint a new fund manager for the second scheme. And while the mandate stays the same, individual styles can vary, leading to different outcomes.
3. Temptation to time the market: There’s a risk that AMCs might launch the second scheme when the market is hot, just to capitalise on investor enthusiasm. That could hurt new investors if a correction follows.
4. Problem of ‘orphaned’ funds: Once the new scheme launches, the original fund will stop accepting new money. That means it could slowly shrink, as it’ll only face redemptions. There’s also a risk that the older fund, once closed for fresh investments, may get less attention or fewer resources from the fund house. Yes, SEBI allows a merger in such cases, but that may be a reactive solution.
Final word
Since this proposal is still at the discussion stage, we’ll keep you updated if or when SEBI moves forward—and we’ll also help you evaluate any ‘Series 2’ fund on merit, not just name.
Want help choosing the right fund for your SIP? Our premium tool, Value Research Fund Advisor, recommends funds based on your goals, time frame and risk appetite. No hype. Just research-backed guidance.
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