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ICICI Prudential Fund Halts New Investments Due to SEBI Rules

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  Published in Stocks and Investing on Friday, March 13th 2026 at 8:42 GMT by moneycontrol.com
      Locales: INDIA, UNITED KINGDOM

Mumbai, March 13th, 2026 - ICICI Prudential Mutual Fund's recent announcement to grandfather its Passive Multi Asset Fund of Funds (FoF), effectively halting new investments as of January 27th, 2026, has sent ripples through the investment community. While existing investors are permitted to retain their holdings, the move signifies a broader recalibration within the multi-asset fund category, driven by regulatory changes imposed by the Securities and Exchange Board of India (SEBI). This development underscores the increasing scrutiny of fund performance and the evolving expectations of both regulators and investors.

The core of this decision lies in SEBI's revised guidelines for multi-asset allocation funds. The new mandate stipulates a minimum 65% allocation to equity. The ICICI Prudential Passive Multi Asset FoF, launched in November 2020, apparently doesn't currently meet this equity threshold, prompting the fund house to choose the grandfathering route rather than restructuring the portfolio to comply. Grandfathering allows the fund to continue serving its existing investor base without accepting further capital, effectively freezing its growth.

Launched with the intention of providing diversified exposure through passively managed underlying funds, the FoF aimed to simplify access to a broad range of asset classes. However, performance data reveals a mixed record. According to MoneyWorks, the fund has delivered returns of 16.58% since its inception. While positive, this figure falls short of its benchmark, the FTSE Custom World Index, which has generated returns of 21.48% over the same period. This underperformance, coupled with the new SEBI regulations, has culminated in the decision to restrict further investment.

The Implications of SEBI's New Guidelines

SEBI's push for a higher equity allocation within multi-asset funds reflects a growing emphasis on transparency and aligning fund strategies with investor expectations. Historically, multi-asset funds offered a broader, often more conservative, approach to investing, encompassing a wider spectrum of asset classes like gold, bonds, and real estate alongside equities. While diversification remains a key benefit, the revised regulations aim to ensure that these funds don't masquerade as equity-like investments with only a superficial allocation to stocks.

For investors, this means a shift in the risk-reward profile of multi-asset funds. A higher equity component naturally introduces greater volatility, particularly during market downturns. However, it also offers the potential for higher returns during bull markets. Investors seeking lower risk profiles may need to reconsider whether a heavily equity-weighted multi-asset fund aligns with their financial goals. The new rules are therefore forcing fund managers to make strategic choices: either increase equity exposure to meet the requirements or clearly define their mandate and target audience.

What Does This Mean for Existing Investors?

Existing investors in the ICICI Prudential Passive Multi Asset FoF are advised to carefully evaluate their investment and consider its suitability within their overall portfolio. The fund will continue to be managed, but without the inflow of new capital, its ability to grow and potentially improve performance may be limited. Analysts suggest comparing the fund's current asset allocation and expense ratio with similar multi-asset funds that do meet the 65% equity threshold. Switching to a comparable fund with a more aggressive equity stance could be an option for investors comfortable with higher risk.

Furthermore, understanding the underlying composition of the FoF is crucial. Investors should assess the performance and expense ratios of the individual passive funds within the FoF to determine if the overall investment strategy remains compelling. It's also important to consider the tax implications of any potential switch or redemption.

The Future of Multi-Asset Investing

The ICICI Prudential decision is likely to be followed by similar actions from other fund houses grappling with the new SEBI guidelines. We can anticipate a period of restructuring and potential consolidation within the multi-asset category. Funds unable or unwilling to meet the equity requirement may choose to close down, while others will adapt by increasing their equity allocations or refining their investment strategies.

Looking ahead, the multi-asset landscape will likely become more polarized, with clearly defined strategies catering to distinct risk appetites. Investors will need to conduct thorough due diligence and seek professional advice to navigate this evolving environment and ensure their investments remain aligned with their long-term financial objectives. The era of the loosely defined, broadly diversified multi-asset fund is giving way to a more specialized and transparent approach.