SEBI is reportedly exploring plans to limit the number of passive mutual fund schemes that an asset manager can offer. The regulator aims to reduce product redundancy and simplify choices for retail investors, though some analysts warn this could limit innovation and investment variety.
The Securities and Exchange Board of India (SEBI) is in the early stages of discussing potential new rules that could limit the number of passive mutual fund schemes asset managers can launch. This move is part of the regulator's broader effort to streamline the mutual fund industry and protect retail investors from an overwhelming number of similar index-tracking products.
Passive funds, which aim to replicate the performance of an underlying index like the Nifty or Sensex rather than picking stocks, have seen massive growth in India. Data as of July 2026 shows that passive fund assets under management reached ₹15.5 trillion, accounting for 18% of the total mutual fund industry's assets. In the year leading up to August 2026 alone, more than 130 new passive fund schemes were introduced, significantly outpacing the 86 active fund launches during the same period.
The regulatory concern stems from the 'redundancy' in the market. Asset managers have launched many funds that track the same investment factors—such as momentum, value, or quality—but with slight variations in the underlying market cap segments. While this provides more options, regulators are concerned that it creates confusion for retail investors who may not understand the subtle differences between these products.
However, some market observers have raised concerns about the potential impact of such caps. If the regulator limits the number of passive schemes, it could restrict the ability of fund houses to introduce innovative investment strategies. Critics of a strict cap argue that the regulator's objective could be better served by focusing on the quality of indices rather than the quantity of funds. Specifically, setting higher standards for liquidity, transparency, and the ability to replicate the underlying index could address the issue of poor-quality products without stifling choice.
It is important for investors to note that these discussions are currently at a preliminary stage. There is no formal policy, circular, or draft regulation in place at this time. The regulatory landscape for the industry has also been evolving, with comprehensive new mutual fund regulations having taken effect as recently as April 1, 2026.
Investors and market participants should track whether the regulator releases a formal consultation paper, which would provide more clarity on how these potential limits might be structured. For now, the core monitorable remains how SEBI balances the need to simplify product choices with the industry's drive for innovation in passive investment strategies.