At its 212th board meeting held on December 17, 2025 (“Board Meeting”), the Securities and Exchange Board of India’s (“SEBI”) board of directors approved the replacement of the SEBI (Mutual Funds) Regulations, 1996 (“1996 MF Regulations”) with a new set of regulations. This follows SEBI’s consultation paper dated October 28, 2025 (“Consultation Paper”) proposing a comprehensive rewrite of the 1996 MF Regulations. A draft of the proposed new mutual fund regulations was attached to the Consultation Paper (“New Draft MF Regulations”).
The key changes in the regulatory regime for mutual funds, that are expected to be introduced through the SEBI (Mutual Funds) Regulations, 2026, are as follows:
Simplified language and greater transparency: The 1996 MF Regulations are almost 30 years old and thanks to the various amendments from time to time have acquired an extensive and layered regulatory structure. SEBI’s Board has promised that the New Draft MF Regulations shall offer stakeholders greater clarity, improved readability, and enhanced structural coherence.
Some of the key highlights of the New Draft MF Regulations are the rrationalization of expense ratios, capping of brokerage costs, and introducing greater transparency in the fee structure of mutual funds.
Overhaul of the Expense Ratio framework:
Total Expense Ratio (“TER”) is not defined in the 1996 MF Regulations. However, it is widely used across the 1996 MF Regulations and is utilised to cap the expenses of the scheme that the mutual fund can claim from its investors. For example, Regulation 52(6)(a)(i) of the 1996 MF Regulations states that “in case of fund of funds scheme – investing in liquid schemes, index fund scheme and exchange traded funds, the total expense ratio of the scheme, including the weighted average of the total expense ratio levied by the underlying scheme(s), shall not exceed 1.00 per cent of the daily net assets of the scheme”.
At the Board Meeting, SEBI clarified that ‘Total Expense Ratio’ shall be the sum of BER, brokerage, regulatory levies and statutory levies. SEBI has now introduced the term ‘base expense ratio’ (“BER”), which, as per Regulation 65 of the New Draft MF Regulations is the sum of (i) investment and advisory fees charged to the scheme by the AMC, and (ii) recurring expenses of the scheme, but excludes GST and other applicable statutory levies on the said expenses, if any, and transaction costs incurred for the purpose of execution of a trade. Regulation 66(2) of the New Draft MF Regulations provides that investors can only be charged the base expense ratio, brokerage cost, transaction cost, statutory levy and exit load, if applicable.
The 1996 MF Regulations had caps on TER. SEBI has now specified caps on BER and these caps are lower than the caps under the 1996 MF Regulations. For example, for index funds and ETFs, the cap is reduced from 1.00% of TER to 0.90% of BER. For fund‑of‑funds (FoFs) investing in liquid schemes, index funds and ETFs, the cap is reduced from 1.00% of TER to 0.90% of BER. For equity‑oriented schemes.
Reduced Brokerage and transaction costs: The 1996 MF Regulations permitted AMCs to charge brokerage and transaction costs incurred for the purpose of execution of trade up to 0.12 per cent of trade value in case of cash market transactions and 0.05 per cent of trade value in case of derivatives transactions. SEBI has now revised the brokerage charge from 12 bps to 2 bps for cash market transactions and 5 bps to 1 bps for derivative transactions to bring clarity and transparency. The limits of 2 bps and 1 bps mentioned above shall be the limit for brokerage alone. All other costs relating to execution of transaction may be charged on actual basis. Further, all statutory levies shall be outside the BER limits. i.e. STT/CTT/GST/stamp duty incurred for execution of trades can be over and above the limit of 2/1 bps.
ELP Comments
Under the 1996 MF Regulations, all expenses charged to the investors in mutual funds are bundled inside the “Total Expense Ratio”. This makes it difficult for investors to easily know how much goes to the fund manager and how much to taxes. The New mutual fund framework will result in the unbundling of costs causing execution and research payments to be separated. This is likely to reduce double charges for investors. Investors will have a better idea as to the different expense heads that they pay for.
The minutes of the Board Meeting held on December 17, 2025 state that relevant changes suggested by the Mutual Fund Advisory Committee were incorporated into the New Draft MF Regulations prior to being placed before the Board. The amendments made to the New Draft MF Regulations based on the suggestions provided by the Mutual Fund Advisory Committee have not been published yet. It is also possible that further revisions to the New Draft MF Regulations will be made by SEBI before they are notified and brought into force.
The consultation paper had proposed amendments to Regulation 24(b), which would relax restrictions on the business activities of AMCs and permit them to undertake investment management and advisory services for non-pooled funds. Regulation 21 of the New Draft MF Regulations provides such relaxation, but the Board Meeting did not discuss this change. That said, it is very likely that these proposals will be implemented in the manner outlined in the Consultation Paper and the New Draft MF Regulations.
The Second Amendment can be found here.
The minutes of the Board Meeting held on December 17, 2025 can be found here.
A copy of the New Draft MF Regulations can be found here.
Disclaimer:
The information provided in this update is intended for informational purposes only and does not constitute legal opinion or advice
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