When you look at each change by itself, they seem technical. For the first time in FY 2026-27, the new rulebook will be in effect. That is why this period of change is so important: the portfolios that worked well before may not be the best fit for the new environment that investors are about to enter.
If investors do a planned, careful portfolio clean-up before March 2026, they will be able to adjust faster. The five most important things are:
1. Look at diversification again in the new SEBI scheme categories.
SEBI’s new rules for categorisation, which went into effect in February 2026, say that asset managers must stick to their stated goals and share data on portfolio overlap every month. The regulator has also set strict limits on how much overlap is allowed. Value and contra funds cannot look more than 50% alike, and thematic funds cannot resemble broad-market equity schemes.
This is a big change because many Indian portfolios have funds that look different but work in almost the same way. The new rules make it easier to find duplicates. Investors may realise that what they thought was a diversified core was really concentrated exposure with different names.
You only need to do a quick check: match each fund to its new SEBI category and read the AMC’s overlap disclosures. You can exit funds that no longer serve a purpose. When the market is stressed, cleaner portfolios tend to perform better over time.
2. Think about how hybrid funds and debt will work in a world without Section 50AA.
There have been major changes to how debt mutual funds are taxed. Beginning on April 1, 2023, any debt-oriented scheme you buy will be taxed at the slab rate, regardless of how long you hold it. This removes the long-term tax benefit that used to make debt funds different from fixed-income instruments.
SEBI has also strengthened liquidity protections by introducing swing pricing and adding more specific debt categories. This means that investing in debt needs to be more purposeful.
Investors should think about what their debt allocation is doing for them.
For the short term, money market or target maturity funds might provide better post-tax outcomes. You should also take a close look at hybrid funds. Their tax status depends on how much equity they hold, but their risk behaviour might not always match investor expectations.
The goal is not to remove debt, but to make sure each allocation serves a clear role.
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3. Use the new visibility of expense ratios to cut down on performance drag that is not obvious.
SEBI has improved transparency for institutional investors by splitting the Total Expense Ratio into Base Expense Ratio, broking, and statutory charges. However, retail investors still often overlook these components.
Costs compound negatively over time, which makes this important. A fund that charges high fees but delivers returns similar to the market gradually erodes long-term wealth.
Investors should compare the average expense ratio for the category with the expense ratios of their funds to see if the fees they pay still make sense. In many cases, switching from regular plans to direct plans immediately improves net returns without changing portfolio risk.
Regular cost reviews remain one of the simplest ways to improve long-term outcomes.
4. Fix administrative issues such as excessive paperwork, nominations, and KYC updates.
Some of the most serious risks to a portfolio have nothing to do with markets. They come from outdated paperwork such as missing nominees, incorrect bank details, scattered folios, and legacy accounts that heirs cannot easily locate.
SEBI’s updated nomination rules, which allow multiple nominees and require verified identification, provide an opportunity to streamline documentation. Consolidating folios within the same AMC, updating contact details, and closing unused accounts can improve future accessibility.
This task may not be glamorous, but it prevents complications for families and ensures investments remain accessible when needed.
5. Take advantage of tax planning before March 2026, which may be a rare opportunity.
Investors need to adjust their exit strategies due to the new tax rules. Short-term capital gains on equity are taxed at 20%, and long-term gains above Rs 1.25 lakh are taxed at 12.5%. However, a transitional provision may allow long-term capital losses booked before March 31, 2026 to offset certain gains in the future.
This creates an opportunity for investors holding structurally weak investments, particularly in small-cap or thematic funds, to book losses and simplify their future tax positions. At the same time, investors can reset cost bases by realising gains of up to Rs 1.25 lakh each year without tax liability.
Careful tax planning this year could significantly improve long-term net returns.
Final thought
India’s mutual fund industry is becoming more transparent, disciplined, and investor-friendly. However, regulation alone does not improve portfolios. Alignment does. As FY 2026-27 approaches, the portfolios that are likely to perform better will be those that eliminate duplication, reassess debt allocation, reduce structural costs, update operational details, and plan taxes carefully.
The rules are no longer the same. Now is the time to prepare portfolios for the environment they will create.
(The author, Chakrivardhan Kuppala is Cofounder & Executive Director, at Prime Wealth Finserv Pvt. Ltd.)
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times.)