New Delhi, Feb. 26 -- The Securities and Exchange Board of India (Sebi) has overhauled norms on how much mutual fund portfolios can overlap, tightening rules for select schemes and pushing asset managers to meaningfully differentiate products that often looked strikingly similar.

In a circular issued on Thursday, the market regulator capped portfolio overlaps at 50% for sectoral and thematic equity schemes with other equity schemes within the same fund house, barring large-cap funds. The overlap must be calculated quarterly using the average of daily portfolio overlap values over the quarter. Existing schemes have three years to comply, failing which they will have to be mandatorily merged.

The move follows a consultation process that s...