What Is a Mutual Fund Scheme Merger? SEBI's Rules (2026)

A mutual fund scheme merger is when a fund house folds one of its schemes into another, so that unitholders of the transferor scheme end up holding units of the transferee, or of a new scheme created for the purpose. Under SEBI's Master Circular for Mutual Funds dated 20 March 2026 (HO/24/13/11(1)2026-IMD-POD-1/I/7602/2026, issued in line with the SEBI (Mutual Funds) Regulations, 2026, which come into force on 1 April 2026; read on 18 September 2026), "any consolidation or merger of Mutual Fund schemes shall be treated as a change in the fundamental attributes of the related schemes" (paragraph 3.2.1). That one sentence is why a mutual fund scheme merger comes with board and trustee approval, a SEBI filing, a letter to every unitholder, an exit window, and a report back to the regulator. It also changes what the monthly portfolio disclosures show, which is where this matters for anyone reading fund holdings.

What is a mutual fund scheme merger under SEBI's rules?

The master circular sets the process out in Part II of Chapter 3, "Consolidation of Schemes". Paragraph 3.2.1 requires the AMC to ensure three things:

1. Approval. "The proposal and modalities of the consolidation or merger shall be approved by the Board of the AMC and Trustee(s), after ensuring that the interest of unit holders under all the concerned schemes have been protected in the said proposal."
2. Filing. The AMC files the proposal with SEBI together with a draft scheme information document updated for the change in fundamental attributes, the requisite fees if a new scheme emerges, and a draft letter to unitholders of all the schemes involved, in the specified format.
3. Observations first. SEBI communicates its observations within the prescribed period, and "the letter to unit holders shall be issued only after the final observations communicated by the Board have been incorporated" and final copies filed.

Because the change is one of fundamental attributes, unitholders get an exit option. Paragraph 3.2.2 refers to "the date of closure of the exit option", and where the merger follows a change in control of the AMC, paragraph 2.5.2 fixes that window at "not less than 30 calendar days from the date of communication", at the prevailing NAV and without exit load. The mutual fund disclosure timelines page lists the 30-day prior notice alongside the other deadlines.

Which fundamental attributes does a merger touch?

Paragraph 1.9.1 of the master circular, read with Regulation 22(9)(c) of the SEBI (Mutual Funds) Regulations, 2026, lists a scheme's fundamental attributes as:

A merger changes at least one of these for the scheme being absorbed, which is why the transferor scheme's unitholders are always given the exit option. Paragraph 3.2.3 carves out the other side: the merger "shall not be seen as change in fundamental attribute of the surviving scheme" if the surviving scheme's fundamental attributes do not change and the fund "is able to demonstrate that the circumstances merit merger or consolidation of schemes and the interest of the unit holders of surviving scheme is not adversely affected." The circular defines the surviving scheme as "the scheme which remains in existence after the merger."

Why are mergers happening now?

The February 2026 categorisation reset added a rule that forces some mergers. A sectoral or thematic scheme may not have more than 50 percent of its portfolio overlapping with the fund house's other equity schemes, other than the large cap scheme (paragraph 3.8.1, item (e)), and existing schemes were given three years to comply: "Schemes unable to meet the portfolio overlap criteria after 3 years shall be mandatorily merged with other schemes as per applicable provisions" (paragraph 3.8.1, item (g)). The background is on the mutual fund scheme categorisation page, and the overlap arithmetic on how to check mutual fund portfolio overlap.

How is performance shown after a mutual fund scheme merger?

Paragraph 14.3, which traces to SEBI's circular of 12 April 2018, gives three cases:

• Two similar schemes merge into a scheme with the same features: the weighted average performance of both schemes is disclosed.
• Scheme A merges into Scheme B and one scheme's features are retained: the performance of the scheme whose features are retained is disclosed.
• A new Scheme C emerges: past performance need not be provided.

Past performance of a scheme whose features were not retained "may also be made available on request with adequate disclaimer" (paragraph 14.3.2).

What a merger does to the portfolio record

For anyone reading fund holdings, a merger is a discontinuity in the data. The transferor scheme's monthly portfolio stops being published; its holdings appear, if at all, inside the surviving scheme's next disclosure, alongside whatever that scheme already owned. Three habits help:

• Check the scheme name and date on every portfolio file. A stock that seems to have been "bought" by the surviving scheme may have arrived through the merger rather than through a market purchase. The columns are explained in how to read a mutual fund portfolio statement.
• Do not compare a merged scheme's holdings to the transferee's pre-merger month as if nothing changed. The base has moved.
• Look for the merger letter. The unitholder letter and the addendum on the AMC's website give the effective date, which is the date to split any before-and-after comparison on.

Flock ingests the monthly AMFI portfolios scheme by scheme, dated and linked to the AMC disclosure, so a merger shows up as a scheme that stops filing and another whose holdings jump. For the route from a stock to the funds that hold it, see how to find which mutual funds are buying a stock. What a mutual fund scheme merger means for your own units is your call to make.