The Securities and Exchange Board of India (SEBI) has published a consultation paper proposing a framework for crypto mutual funds, potentially allowing registered asset management companies to offer regulated digital asset investment products to Indian retail investors. The proposal, if adopted, would mark a watershed moment for crypto adoption in India.

Framework Details

Under the proposed framework, crypto mutual funds would be classified as a new category within the existing alternative investment fund (AIF) structure. Key provisions include a minimum investment of ₹10,000 ($120 USD), a maximum portfolio allocation of 50% to any single digital asset, and mandatory custody through SEBI-registered custodians.

The eligible asset universe would be limited to digital assets with a minimum market capitalization of $5 billion and daily trading volume exceeding $500 million, effectively restricting funds to the top 15-20 cryptocurrencies. This conservative approach aims to protect retail investors from the volatility associated with smaller, more speculative tokens.

Industry Response

The Indian mutual fund industry, which manages over ₹55 lakh crore ($660 billion) in assets, has responded with measured enthusiasm. Several large asset management companies including SBI MF, HDFC MF, and ICICI Prudential MF are reportedly evaluating the opportunity, though none have publicly committed to launching crypto products.

Industry body AMFI (Association of Mutual Funds in India) has formed a dedicated working group to study the operational requirements, including custody solutions, NAV calculation methodology, and risk management frameworks specific to digital assets.

Tax Implications

The consultation paper does not address the existing 30% flat tax on crypto gains, which would presumably apply to profits realized through crypto mutual funds. Industry participants have urged SEBI to coordinate with the Finance Ministry to create a more favorable tax treatment for regulated investment products, potentially aligning crypto mutual fund taxation with equity mutual funds (10% LTCG after one year).

Timeline

The public consultation period runs for 60 days, after which SEBI will evaluate feedback and issue final regulations. Industry sources expect the framework to be finalized by Q3 2026, with the first crypto mutual fund products potentially launching by early 2027. If successful, this could unlock a significant new source of retail capital for the crypto market, given India's 400 million+ mutual fund folios.