Mains issueGS-3News & Analysis26 October 2026

SEBI Regulations, Fund Management, and Investor Asset Allocation in Capital Markets

Aspirants should be able to analyze how SEBI's regulatory changes impact fund management strategies, market stability, and investor portfolio construction, emphasizing the balance between providing flexibility to funds and ensuring investor protection and transparency.

Source: thehindu.comOriginal report

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Why now

SEBI's recent allowance for equity funds to invest a portion of their residual portfolio in non-equity instruments like gold/silver ETFs and InvITs has implications for fund management strategies, market stability, and investor portfolio diversification, making it a relevant topic for understanding capital market dynamics.

Core issue

The Securities and Exchange Board of India (SEBI) has permitted equity funds to invest up to 35% of their residual portfolio (which is typically up to 20% of the total AUM for large-cap funds) in non-equity instruments such as gold ETFs, silver ETFs, and Infrastructure Investment Trusts (InvITs). The rationale is to stabilize portfolios during sharp equity market declines. However, this flexibility could unintentionally skew an investor's overall asset allocation if they also hold direct exposure to these non-equity assets. For investors concerned about this, passive products like index funds and equity ETFs, which mirror their benchmark indices, offer a way to ensure pure equity exposure.

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