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nism-series-va-rule-of-20-25-unitholder-concentration[ MUTUAL FUND DISTRIBUTORS ]

Under SEBI (Mutual Funds) Regulations, what is the 'Rule of 20/25' governing scheme portfolio diversification and unitholder concentration?

[ A ]A scheme must invest in exactly 20 stocks for 25 years.
[ B ]A scheme must hold 20% in gold and 25% in cash reserves.
[ C ]A scheme must have a minimum of at least 20 distinct unitholders, and no single unitholder/investor shall account for more than 25% of the total corpus/AUM of the scheme on a quarterly average basis.[ CORRECT ]
[ D ]A scheme must employ 20 fund managers for 25 schemes.
Takeaway

Option C is correct: A scheme must have a minimum of at least 20 distinct unitholders, and no single unitholder/investor shall account for more than 25% of the total corpus/AUM of the scheme on a quarterly average basis.

Derivation
The Rule of 20/25 is a scheme-level investor-concentration safeguard, not an asset-allocation or staffing rule: every open-ended scheme must have at least 20 distinct unitholders, and no single investor can hold more than 25% of the scheme's corpus on a quarterly average basis. Both conditions guard against the same risk — a scheme dominated by a few large investors becomes exposed to sudden liquidity shocks if one of them exits, forcing costs onto the remaining unitholders. This is distinct from portfolio diversification rules like the Focused Fund's stock-count cap, which govern securities held, not investors — the 20/25 rule is purely about how ownership of the scheme itself is spread across the investor base.
Why the others fail
A — A scheme must invest in exactly 20 stocks for 25 years.
Stock-count and holding-period requirements are governed by scheme category rules, such as a Focused Fund capping holdings at 30 stocks, not by the 20/25 investor-concentration rule.
B — A scheme must hold 20% in gold and 25% in cash reserves.
The 20/25 rule addresses how many unitholders a scheme has and how concentrated its ownership is, not any mandated allocation to gold or cash reserves.
D — A scheme must employ 20 fund managers for 25 schemes.
Fund manager and staffing counts are internal AMC operational decisions, unrelated to the 20/25 rule, which governs unitholder count and ownership concentration.