As part of efforts to bring transparency and make mutual fund investing cheaper, capital markets regulator SEBI has proposed a sweeping overhaul in the way mutual funds are managed in the country.
The capital market watchdog has floated a consultation paper on a comprehensive review of SEBI (Mutual Funds) Regulations, 1996. The review is aimed at simplifying rules, rationalising costs, and ensuring that more benefits flow directly to investors.
SEBI has suggested tightening the cost structures for fund houses so that more benefits reach investors directly. At the heart of these proposals is a push to reduce overall fund expenses and bring greater clarity on charges.
Significant cut in brokerage and transaction costs for MF investors
The regulator has proposed a reduction in brokerage and transaction costs that fund houses can link to their schemes — from 12 bps to 2 bps for cash market trades and from 5 bps to 1 bps for derivatives. This move seeks to prevent investors from being charged twice for research services already covered under management fees.
Sebi has also removed the additional 5 basis points expense that fund houses could charge on schemes with exit loads – calling it “transitory in nature”.
However, to soften the operational impact on fund houses, SEBI has proposed revised expense ratio slabs by raising the first two tiers by 5 bps.
Another key proposal is to exclude all statutory levies such as GST, STT, CTT, and stamp duty from the overall expense ratio (TER) limits.
Transparency in fee disclosures
Currently, only GST on management fees is outside the TER cap, but SEBI wants all statutory charges to be shown separately to make fee disclosures cleaner and easier to understand for investors.
The consultation paper mandates clearer TER disclosures, covering all expense heads, brokerage, exchange and regulatory fees, and statutory levies. This will help investors see the true cost of their investment.
SEBI has also proposed an optional performance-linked TER framework, allowing AMCs to charge based on a scheme’s performance, subject to a detailed structure to be finalised later.
Beyond costs: Overhaul of mutual fund regulations
While reducing costs is the central theme, SEBI’s draft proposals go much further, covering governance, compliance, and operational simplification.
Here are the 5 key themes of the regulatory revamp:
Greater clarity for AMCs and trustees: Roles and obligations of trustees and AMCs have been standardised under specific heads for easier reference. The draft also clarifies that expenses related to launching a new scheme up to allotment date must be borne by AMCs or trustees, not investors.
Flexibility with oversight: SEBI has proposed changes to Regulation 24(b), allowing AMCs (or their subsidiaries) to offer investment management and advisory services to non-pooled funds, provided they maintain “Chinese walls” between business units and are under enhanced trustee oversight.
Rationalised timelines and compliance ease: Various timelines specified in “days” are now clarified as either “calendar days” or “business days,” removing ambiguity in regulatory processes.
Ease of communication and reduced paperwork: The requirement of publishing advertisements in newspapers for changes in control or scheme attributes has been replaced by digital communication through websites, emails, or SMS. Similarly, submission of ad copies to SEBI has been dropped as monitoring is now automated.
Updated definitions and deleted redundant clauses: SEBI has defined new terms like “Total Expense Ratio” and “Exit Load,” modified existing definitions (such as “Mutual Fund” and “Liquid Net Worth”), and deleted outdated provisions like those related to Capital Protection Oriented Schemes, Real Estate Mutual Funds, and Infrastructure Debt Funds.