Mutual fund houses may need to reshuffle portfolios worth about ₹76,000 crore as they move to comply with the Securities and Exchange Board of India’s new rules aimed at curbing excessive overlap between schemes.
According to an analysis by Elara Securities, as many as 51 sectoral and thematic schemes currently have more than 50 per cent portfolio overlap with another equity scheme within the same asset management company. The comparison included overlaps with both other thematic funds and diversified equity schemes, excluding large-cap funds.
However, the number of cases that may see meaningful portfolio changes is far smaller. Excluding funds with assets below ₹1,000 crore, only 13 schemes show an overlap exceeding 52 per cent, the report said. About ₹76,000 crore of assets may require portfolio reallocation, the brokerage estimated.
Three-year compliance window
The regulator has provided a staggered implementation timeline for fund houses to comply with the rule. Around 35 per cent of the overlapping exposure will need to be adjusted in the first year, another 35 per cent in the second year and the remaining 30 per cent in the third year.
“In the context of overall market liquidity and considering that the adjustment is spread over three years, the aggregate impact does not appear materially disruptive,” Elara said.
In fact, the brokerage estimates that the actual selling requirement could be far lower. If fund houses proportionately trim positions in the smaller scheme of each overlapping pair, cumulative selling could amount to about ₹6,135 crore. Under a more optimised approach, where adjustments are made across schemes to minimise trades, the selling requirement may fall slightly to about ₹5,890 crore.
Large-caps in focus
The highest overlapping exposures are largely concentrated in highly liquid large-cap stocks such as banks, telecom and index heavyweights, which are seen as capable of absorbing the flows.
Top overlap cases
Among the scheme pairs with the highest overlap are Quant Momentum Fund and Quant Quantamental Fund with a 78 per cent overlap, Motilal Oswal Business Cycle Fund and Motilal Oswal Multi Cap Fund with 75 per cent, and Aditya Birla Sun Life Business Cycle Fund and Aditya Birla Sun Life Flexi Cap Fund with 63 per cent.
Smaller schemes adjust
Elara said portfolio realignment is more likely to occur within the smaller scheme of each pair, since adjusting the larger fund would have a greater execution impact.
Beyond the immediate selling pressure, the more relevant effect could be a gradual shift in portfolio construction. Funds may create room for alternative holdings and reduce concentration in overlapping stocks as they reposition portfolios to meet the new regulatory threshold.