# What Is the 75-5-10 Rule in Mutual Funds? The 75-5-10 rule is a US test for calling a mutual fund diversified. What each number means, why it isn't a SEBI rule, and the limits Indian funds follow. --- Rule Explained # What Is the 75-5-10 Rule in Mutual Funds? The 75-5-10 rule is a US legal test for calling a mutual fund diversified: for 75% of its assets, a fund can put no more than 5% in one issuer or own more than 10% of that issuer's voting shares. October 11, 2026 5 min read By [Shivaani Mehrra](https://www.linkedin.com/in/shivaani-mehrra/) The short answer It comes from Section 5(b)(1) of the US Investment Company Act of 1940. It doesn't govern Indian mutual funds, and it isn't a rule for your own portfolio. Indian funds follow SEBI's limits instead. The three numbers work together. Take a US fund with ₹1,000 crore of assets, using rupees only to keep the example simple: Number What it limits In this fund 75 Share of assets the test applies to At least ₹750 crore 5 Maximum in one issuer, as a share of total assets ₹50 crore per issuer 10 Maximum share of an issuer's voting securities 10% of that company The remaining ₹250 crore isn't covered by the test, so it could be far more concentrated. Passing means a fund can call itself diversified under US law. It doesn't mean the fund is low risk. No. It's part of US law. Some Indian articles present it as a mutual fund rule, but SEBI's regulations are what bind Indian schemes. SEBI (Mutual Funds) Regulations, 2026 replaced the 1996 regulations, and they leave the detailed concentration limits to prudential limits set by SEBI. Point US 75-5-10 test India Set by Investment Company Act of 1940 SEBI Purpose Decides whether a fund may be labelled diversified Sets limits every scheme must follow Single-company equity 5% of total assets, on 75% of the portfolio 10% of a scheme's NAV under the 1996 regulations; now set by SEBI as a prudential limit Debt Same issuer test Separate issuer limits based on credit rating Index funds and sector funds follow their own mandates, so check the scheme document for the limits that apply. The * SID and KIM guide shows where to look. For category rules, see the [SEBI 80% rule](/blog/sebi-80-percent-rule-mutual-fund-categories-india). **Top 10 holdings:** a high share in a few stocks means more concentration, whatever the fund's label says. * **Overlap:** two diversified funds can own the same stocks. Compare them with the [fund overlap checker](/calculators/fund-overlap-checker). * **Number of funds:** more funds doesn't always mean more diversification. See [how many mutual funds to own](/blog/how-many-mutual-funds-should-you-own-india). ## Sources & References * [US SEC: staff report on threshold limits for diversified funds](https://www.sec.gov/files/staff-report-threshold-limits-diversified-funds.pdf) * [SEBI: SEBI (Mutual Funds) Regulations, 2026](https://www.sebi.gov.in) * [AMFI: investor education](https://www.amfiindia.com) ## Frequently Asked Questions Common questions about the 75-5-10 rule. ### What is the 75-5-10 rule? + It's a US test for a diversified fund. On at least 75% of total assets, a fund can have no more than 5% of total assets in one issuer and can't own more than 10% of that issuer's voting securities. ### Is the 75-5-10 rule a SEBI rule? + No. It comes from the US Investment Company Act of 1940 and applies to US funds. Indian mutual funds follow SEBI's regulations, which set their own investment limits, so the 75-5-10 rule doesn't bind any Indian scheme. ### What happens to the remaining 25% under the rule? + The test doesn't cover it, so that part of the fund can be more concentrated. A fund can hold larger positions in a few issuers there and still pass the test, which is one reason passing it doesn't make a fund low-risk. ### How much can an Indian mutual fund invest in one stock? + The 1996 regulations capped it at 10% of a scheme's NAV. The 2026 regulations leave the limit to prudential limits set by SEBI, so check the scheme document for the current figure. Index and sector schemes follow their own mandates. ### Does following the rule make a fund safe? + No. It measures how spread out a fund is, not market risk. A diversified equity fund can still fall sharply in a downturn, because most of its stocks can drop together. Meeting the test says nothing about future returns. ### Should I use 75-5-10 for my own investments? + No. It's a legal label for funds, not a personal allocation rule. For your own money, start with your goals, time horizon and asset allocation, then check how much your funds overlap and how concentrated their top holdings are. Built for Indian Retail Investors ## See how concentrated your portfolio really is Upload your CAS statement and FundSageAI shows overlap between your funds, your category mix and your true XIRR. [Analyse My Portfolio ](/login) [Check Fund Overlap](/calculators/fund-overlap-checker) FundSageAI is an analytics platform. Content on this blog is for educational purposes only and does not constitute financial advice. Always consult a SEBI-registered investment advisor for personalised recommendations.