Under SEBI is the statutory regulator of India's securities market, with the legal duty to protect investors and to promote and regulate that market. Read the full meaning of SEBI circular of 26 February 2026, sectoral and thematic equity schemes may hold no more than 50% of their portfolio in stocks that overlap with other equity schemes, with large-cap schemes excepted from this limit. The circular, titled "Categorization and Rationalization of Mutual Fund Schemes", has also split the two types of funds, which had earlier been grouped together, into separate categories.
For investors looking up the thematic fund SEBI definition, the position has therefore changed, as a thematic label now has to describe a portfolio that differs from ordinary equity funds.
The existing schemes have been given three years from the date of the circular to comply, so the deadline will fall in early 2029.
Where a thematic fund differs from a sectoral one
As per the circular text reproduced by TaxGuru, a thematic fund must hold at least 80% of its total assets in equity and equity related instruments linked to one particular theme.
A sectoral fund is different, as Value Research explains the 2017 framework. In that framework, the 80% requirement of a sectoral fund is confined to a single industry, whereas a thematic fund can hold stocks across several sectors that fall under the same theme. A banking fund is therefore sectoral, while a fund built around consumption or infrastructure can include companies from many industries.
The thematic definition is not new. It dates to the categorisation circular of 6 October 2017, numbered SEBI/HO/IMD/DF3/CIR/P/2017/114 which is hosted on the AMFI website.
What has changed is that the two types of funds which were earlier grouped together, are now separate categories with their own rules.
How the overlap test is applied
Overlap is measured every quarter, so the cap is checked quarter by quarter and not at a single point in time, as per Value Research's reading of the circular. A scheme will therefore have to stay within the limit on a continuing basis.
Schemes that still fail the test after the three year period must be merged into other schemes, as the circular requires, according to the text reproduced by TaxGuru.
On flows, September 2026 inflows into such funds rebounded from August, but they remained well below the FY25 level.
