The line has a door built into it.
The cap bites where overlap is easy to point at. Where it is worst for a normal portfolio, it quietly steps aside.
| What the February 2026 rule actually covers | Overlap cap |
|---|
| Thematic or sectoral vs other equity schemes | 50 pct |
| Value fund and Contra fund, same house | 50 pct |
| Large cap schemes | carved out |
| How it gets policed | Rule |
|---|
| Overlap measured on | avg daily holdings |
| Checked | every quarter |
| Still breaching after three years | schemes merge |
Here is the door. Two plain large cap funds can share 60 to 80 pct of their book and break nothing, because the eight or nine mega caps that top every fund sit inside the carve out. Illustrative range, but that is where most of your real overlap lives.