The Securities and Exchange Board of India (SEBI) has announced a comprehensive overhaul of mutual fund regulations, introducing a refreshed regulatory framework that will come into force from April 1, 2026. The new rules, notified on Friday, January 16, 2026, mark one of the most significant reforms in the mutual fund industry in over 30 years.

The revised regulations, approved at SEBI’s board meeting in December, aim to strengthen transparency, improve governance standards, and enhance investor protection. Key changes include a redesigned expense structure, tighter disclosure requirements, and expanded accountability for mutual fund trustees and senior management.

Performance-Linked Expense Structure Introduced

A major highlight of the new framework is the introduction of a performance-linked base expense ratio. Mutual fund schemes may now offer a base expense ratio that varies with scheme performance, subject to conditions laid down by the regulator.

SEBI clarified that schemes opting for such a structure must comply with the expense framework and disclosure norms specified by the Board from time to time, ensuring investors clearly understand how costs are linked to performance.

Stronger Governance and Oversight

The updated regulations significantly enhance the role of trustees and key managerial personnel within asset management companies. By expanding their responsibilities, SEBI aims to reinforce internal oversight, strengthen compliance culture, and ensure higher standards of governance across the mutual fund ecosystem.

Clear Separation of Expenses

One of the most important structural changes is the introduction of the Base Expense Ratio (BER). Under the new system, the BER will reflect only the fee charged by the AMC for managing investor funds. Other costs—such as brokerage, securities transaction tax (STT), stamp duty, and exchange-related charges—will be disclosed separately.

Earlier, these expenses were combined under the Total Expense Ratio (TER). The new approach is expected to improve cost transparency and allow investors to better assess the true cost of fund management.

Brokerage Limits Rationalised

SEBI has also revised brokerage ceilings across different market segments. In the cash market, the brokerage cap has been reduced to 6 basis points from an effective level of 8.59 basis points earlier. In the derivatives segment, the net brokerage limit has been lowered to 2 basis points from 3.89 basis points. These changes are aimed at aligning costs more closely with market realities and reducing the overall expense burden on investors.

Summary:
SEBI has notified new mutual fund regulations effective April 1, 2026, introducing a performance-linked base expense ratio, stricter disclosure norms, and enhanced governance standards. The overhaul separates AMC fees from other costs, rationalises brokerage caps, and strengthens trustee oversight, marking a major shift toward greater transparency and investor protection in the mutual fund industry.

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