SEBI has notified the Mutual Funds Regulations 2026, replacing the 1996 framework after nearly three decades, with implementation starting April 1, 2026. This comprehensive update focuses on transparency, cost reduction, and stronger oversight in India's asset management industry . Key reforms aim to align fees with performance while simplifying compliance for passive funds.
Expense Structure Overhaul
The new rules introduce the Base Expense Ratio (BER), which covers only the asset management company's (AMC) management fees, excluding statutory charges like Securities Transaction Tax, GST, stamp duty, and exchange fees. These must now be disclosed separately for clearer investor visibility . Performance-based BER charging is permitted, subject to SEBI-specified structures, potentially rewarding strong fund outcomes.
Expense caps have tightened: index funds and ETFs drop to 0.90% BER from 1%, while equity-oriented close-ended schemes fall to 1% from 1.25%. Brokerage limits also shrink—cash market to 6 basis points (from 8.59 bps) and derivatives to 2 bps (from 3.89 bps)—yielding 6-8 bps in real cost savings per experts like Dhirendra Kumar of Value Research.
| Fund Category | Previous TER Cap | New BER Cap |
| Index Funds/ETFs | 1% | 0.90% |
| Equity Close-Ended | 1.25% | 1% |
| Cash Brokerage | 8.59 bps | 6 bps |
| Derivatives Brokerage | 3.89 bps | 2 bps |
Governance and Oversight Enhancements
Trustees and independent directors gain expanded roles, overseeing investment agreements, compensation, and related-party contracts more rigorously. Boards require at least two-thirds independent trustees and 50% independent AMC directors . Annual reports must feature detailed trustee performance commentary, historical per-unit stats, and explicit expense/valuation disclosures, delivered digitally to unitholders promptly.
MF Lite and Regulatory Streamlining
A new Mutual Fund Lite (MF Lite) regime eases norms for passive index funds and ETFs, including lower sponsor net worth and simplified governance . The rulebook shrinks dramatically—from 162 to 88 pages, cutting words by 54%—for concise, investor-friendly compliance. Industry leaders like Navneet Munot of HDFC AMC welcome these as transparency boosters, despite impacts on large funds.
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