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SEBI Board Approves New Mutual Fund Regulatory Framework
At its meeting on 17 December 2025, the SEBI Board (the decision-making body within SEBI) approved the new SEBI (Mutual Funds) Regulations, 2026, replacing the existing 1996 regulations. Once notified in the Official Gazette, these regulations will become binding and enforceable.
The 1996 Regulations, which have governed the Indian mutual fund industry for nearly three decades, currently remain in force and, over time, have been amended to address evolving market practices, which has resulted in a complex and layered regulatory framework. To address this, SEBI undertook a holistic review to simplify the regulatory framework while retaining core principles and safeguards, and at the same time strengthening investor protection, transparency and governance standards.
The review of the regulations considered industry consultation through AMFI, public feedback on a consultation paper issued in October 2025, and deliberations with the Mutual Fund Advisory Committee in November 2025.
The changes are summarised below:
Simplification and Consolidation
The regulations have been reorganised with simplified language and a clearer structure, consolidating related provisions and removing overlaps. Eligibility criteria for sponsors of Mutual Funds and Mutual Fund Lite have been streamlined, while the roles and responsibilities of AMCs and Trustees have been regrouped under common thematic headings. Provisions relating to prudential investment limits and valuation have been consolidated, and redundant chapters, including those relating to Real Estate Mutual Funds and Infrastructure Debt Fund schemes, have been deleted in view of separate existing frameworks.
Transparency and Strengthening of Investor Protection
The expense framework has been revised through the introduction of the Base Expense Ratio (BER), under which statutory and regulatory levies are excluded and charged on actuals as part of Total Expense Ratio. The Total Expense Ratio (TER) will now comprise BER, brokerage and statutory and regulatory levies. Revised BER limits have been prescribed across Index Funds, ETFs, Fund of Funds, open-ended and close-ended schemes, broadly reflecting the exclusion of statutory levies from earlier caps. Brokerage limits have been rationalised to 6 bps for cash market transactions and 2 bps for derivatives, both exclusive of levies, and the additional 5 basis points expense allowance for schemes with exit loads (which was a transitional provision) has been removed.
Ease of Compliance
Compliance requirements have been rationalized through fewer annual trustee meetings, removal of separate half-yearly portfolio disclosures, and elimination of duplicative filings such as separate trustee transaction reporting, given coverage under the SEBI (Prohibition of Insider Trading) Regulations, 2015. The framework also adopts a digital-first approach to disclosures and advertisements and streamlines the borrowing framework, including permitting borrowing by equity-oriented index funds and ETFs for execution-related needs and clarifying intra-day borrowing for managing redemption timing mismatches.
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Our Comments
Mutual funds enjoy tax exemption at the scheme level and continue to witness rapid growth in Assets under Management (AUM). In this context, the rationalisation of expense ratios is intended to pass on the benefits of scale to investors, which is expected to directly support higher Net Asset Values (NAVs) over time.
From the perspective of the mutual funds, the revised expense framework, including separation of statutory levies from the Base Expense Ratio and lower brokerage caps, will require strong systems, accurate classification and tighter scheme-level controls, with audit focus on expense computation and disclosures. The consolidation of AMC and Trustee responsibilities and the move to digital-first compliance increase reliance on governance effectiveness, internal controls and data integrity, shifting audit emphasis towards substance, transparency and accountability.
The SEBI Board also approved amendments across other key regulatory frameworks (including Listing & Disclosure requirements, Foreign Portfolio Investors regulations, Issue/ICDR provisions and related regimes) as part of its 17 December 2025 meeting, underscoring a broader capital markets reform agenda.
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