Sebi probes surge in thematic mutual fund schemes amid NFO arbitrage

The Securities and Exchange Board of India (Sebi) is looking into the slew of thematic mutual fund scheme launches in the past year.

"There was an incentive, which was a bit of a perverse incentive, to launch more and more NFOs (new fund offerings). I think the data just speaks for itself," said Sebi chairperson Madhabi Puri Buch at a mutual fund industry event on Friday. "Our assessment was that one of the factors contributing to the proliferation of thematic schemes...was an arbitrage between normal schemes and NFOs (new fund offerings). And that arbitrage took many forms."

In 2024, sectoral or thematic funds sold like hotcakes as investors pumped in close to ₹80,000 crore in these new fund offerings. Mutual funds flooded the market with funds around themes such as manufacturing, defence, business opportunities and PSUs, among others, as fund houses can launch only one scheme in each category. As large fund houses already have a product in the most popular equity categories, they launched thematic funds.


The sectoral and thematic funds are the largest category in the equity mutual fund space managing assets worth ₹4.63 lakh crore in January 2025, up from ₹2.64 lakh crore in January 2024. "There is no point in saying let's put a cap on thematic," said Buch. "What is driving that proliferation is the issue. So we had done a consultation paper."

She said the Sebi board in its last meeting had approved the consultation paper. "So you will start to see the result of root cause elimination," she said.

The Sebi chief was speaking at an event organised by the Association of Mutual Funds in India (AMFI) to launch three new initiatives which aims at improving financial inclusion, investor awareness, and investment recovery.