The world of Indian Mutual Funds is about to get a major makeover. If you’ve been investing (or thinking about it), you probably know the mantra “Mutual Funds Sahi Hai.” But starting April 1, 2026, SEBI (the Securities and Exchange Board of India) wants to make sure they are not just “sahi” (right), but also more transparent, cheaper, and safer for you.
Think of this as a “Version 2.0” upgrade for the Mutual Fund industry. SEBI has introduced the SEBI (Mutual Funds) Regulations, 2026, which will replace the old rules from 1996.
In this blog, let’s break down these changes.
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Buckle up. Here we go!
1. The Expense Ratio Gets a Makeover
First up, let’s talk about the Total Expense Ratio (TER). This is basically the annual fee that mutual funds charge you for managing your money. And SEBI has completely revamped how this works.
Earlier, mutual funds could charge expenses based on a complex formula. Different types of schemes had different limits, but the structure was relatively straightforward.
The New Rule: SEBI has now created a more detailed, slab-based system and reduced the max base TER. Here’s what it looks like for open-ended equity schemes:
- On the first ₹500 crores: Up to 2.10%
- On the next ₹250 crores: Up to 1.90%
- On the next ₹1,250 crores: Up to 1.60%
- On the next ₹3,000 crores: Up to 1.50%
- On the next ₹5,000 crores: Up to 1.40%
- Beyond ₹10,000 crores: The expense ratio reduces by 0.05% for every ₹5,000 crore increase
- Final slab: 0.95%
For debt schemes, the limits are lower, ranging from 1.85% down to 0.70%.
What this means for you: As funds grow bigger, they’ll have to charge you less. This is good news because economies of scale should benefit investors, not just fund houses.
Also, index funds and ETFs now have a cap of 0.90%, which makes passive investing even more attractive from a cost perspective.
Brokerage Costs: A New Line Item
Here’s something interesting. SEBI has separated brokerage costs from the base expense ratio.
What’s changing: Mutual funds can now charge up to 0.06% of the trade value for cash market transactions and 0.02% for derivatives transactions over and above the base expense limit. Anything beyond this has to come from the base expense ratio itself.
Why this matters: Earlier, these costs were all clubbed together. Now, you’ll get better transparency on how much your fund is actually spending on executing trades. If a fund is churning its portfolio too much and racking up brokerage costs, you’ll know.
2. Exit Loads: A Hard Cap
SEBI has now explicitly capped exit loads at 3% of NAV for open-ended schemes.
And here’s the kicker: any exit load collected must go back to the scheme, not to the AMC. This ensures that investors who stay don’t subsidise those who leave.
3. Mutual Fund Lite: A New Category
SEBI has created an entirely new category called “Mutual Fund Lite” or “MF Lite.” These are simplified mutual funds that can only launch passive schemes like index funds, ETFs, and fund of funds.
Lower barriers to entry: MF Lite has much lower capital requirements compared to regular mutual funds. The minimum net worth requirement is just ₹35 crores (compared to ₹50 crores for regular funds).
Why this matters: This could lead to more competition in the passive fund space, potentially bringing down costs further and giving investors more choices. Think of it as democratising the mutual fund industry.
4. Stricter Rules for Fund Managers and Dealers
SEBI has introduced a comprehensive Code of Conduct for fund managers and dealers. This is huge for investor protection.
What they can’t do anymore:
- Engage in circular trading
- Manipulate prices of infrequently traded securities
- Give preferential treatment to one scheme over another
- Indulge in market abuse or front-running
- Make misleading quotations
- Execute “routing deals” (buying a security on behalf of someone who doesn’t have funds, with an understanding to sell it later at a predetermined price)
What they must do:
- Record all investment decisions in writing with detailed justifications
- Communicate through recorded channels during market hours
- Disclose any conflicts of interest
- Submit quarterly self-certification to trustees confirming compliance
This is a big deal because it directly addresses some of the questionable practices that have plagued the industry.
5. Enhanced Governance and Trustee Oversight
SEBI has significantly beefed up governance requirements.
Key changes:
- At least two-thirds of trustee company directors must be independent
- Trustees must conduct quarterly reviews of broker transactions to avoid concentration of business
- Independent trustees must review investments in group companies of the sponsor
- Stricter conflict of interest norms
- Mandatory Unit Holder Protection Committees
The regulations also require that:
- Trustees meet at least once every quarter (minimum 4 meetings annually)
- Asset management companies maintain detailed records of all inter-scheme transactions
- Complete audit trails are maintained
6. Valuation: Fair and Transparent
SEBI has laid down detailed principles for the fair valuation of investments. This is crucial because the NAV (Net Asset Value) you see depends entirely on how securities are valued.
Core principles:
- Valuation must reflect realisable value on a given date
- Independent auditors must review valuation policies annually
- Any deviation from disclosed valuation policies must be documented and reported to trustees
- Asset management companies are responsible for fair valuation regardless of disclosed policies
7. Faster Grievance Redressal
SEBI has tightened the timeline for resolving investor complaints.
New deadline: Asset management companies must now redress investor grievances within 21 calendar days from receipt of the complaint.
A formal dispute resolution mechanism, including mediation, conciliation, and arbitration, backs this.
8. Goodbye, Celebrities! (The New Ad Code)
We’ve all seen famous cricketers or actors promoting mutual funds. Well, say goodbye to them.
Under the 2026 rules, no celebrities can be part of mutual fund advertisements. SEBI believes that financial products should be bought based on facts and risk profiles, not because your favourite superstar says so.
Other “Ad” Changes:
- Clearer Warnings: The standard “Market Risk” warning must now be clearly audible in audio-visual ads (at least 5 seconds long) and shown in legible fonts. No more “super-fast” voiceovers that you can’t understand.
- No Testimonials: Ads cannot include rankings based on arbitrary criteria or personal testimonials to lure you in.
What Should You Do?
Honestly? Not much changes for you as an investor on a day-to-day basis.
But here are a few things to keep in mind:
1. Review expense ratios: As funds grow, they should pass on the benefit of lower costs. If your fund isn’t doing that, ask why.
2. Check for better disclosure: Use the enhanced disclosure norms to understand exactly what you’re paying for. Look at the consolidated account statements to see how much is going toward distribution commissions.
3. Watch for new players: With MF Lite making entry easier, you might see new passive fund options. More competition usually means better products and lower costs.
4. Read the fine print: Valuation policies will now be disclosed in detail. Take a few minutes to understand how your fund values securities, especially if you’re invested in debt funds.
5. Leverage grievance mechanisms: If you have a complaint, remember you now have a clear 21-day timeline and formal dispute resolution mechanisms.
Final Thoughts
SEBI’s new regulations represent a comprehensive overhaul of the mutual fund industry. The focus is clearly on transparency, investor protection, and reducing costs.
While the regulations run into hundreds of pages, the core message is simple: mutual funds need to be more transparent about what they do with your money, how much they charge, and how they manage conflicts of interest.
As an investor, you now have better tools to hold your fund house accountable. Use them wisely.
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Still Curious?
If you are like us, who likes to analyse a little more or check out content in different formats, well you are in luck. Below you can find some suitable content we found.
INDmoney – SEBI (Mutual Funds) Regulations, 2026: Key Changes and Impact on Investors (Blog)
SEBI – Securities and Exchange Board of India (Mutual Funds) Regulations, 2026 (Circular)
Note: We don’t have any affiliation with them. We are sharing links only for educational purposes. The opinions expressed by them belong solely to them and do not reflect the views of Vrid.
