The Securities and Exchange Board of India (SEBI) has approved the SEBI (Mutual Funds) Regulations, 2026, marking a significant regulatory update for the mutual fund industry. Announced on December 17, 2025, these regulations will replace the existing SEBI (Mutual Funds) Regulations, 1996.
According to the regulator, the revised framework has been designed to offer greater clarity, improved readability, and enhanced structural coherence. While the format and language have been modernised, SEBI has retained the core principles, safeguards, and regulatory intent developed over the years. The new regulations also aim to further strengthen investor protection, transparency, and governance standards across the mutual fund ecosystem.
Revised Expense Ratio Framework
One of the most notable changes introduced under the SEBI (Mutual Funds) Regulations, 2026 is the revision of the expense ratio framework. Under the new structure, expense ratio limits will now be referred to as the Base Expense Ratio (BER).
The Total Expense Ratio of a scheme will be calculated as the sum of the Base Expense Ratio, brokerage, regulatory levies, and statutory levies.
Key features of the revised expense ratio framework include:
• The Base Expense Ratio will exclude all statutory levies.
• Statutory and regulatory levies such as STT or CTT, GST, stamp duty, SEBI fees and exchange fees incurred for trade execution will be charged on actuals.
• These levies will be charged over and above the permissible brokerage limits.
This revised structure is intended to improve transparency by clearly separating fund management costs from statutory charges.
Revised Base Expense Ratio Limits
SEBI has also revised the Base Expense Ratio limits across multiple scheme categories. The updated limits are as follows:
| Scheme Type | Current Limit (Including Statutory Levies) | Revised Limit (Excluding Statutory Levies) |
| Index Funds and ETFs | 1.00% | 0.90% |
| Fund of Funds investing in liquid schemes, index funds or ETFs | 1.00% | 0.90% |
| Fund of Funds investing more than 65% of AUM in equity-oriented schemes | 2.25% | 2.10% |
| Other Fund of Funds | 2.00% | 1.85% |
| Close-ended equity-oriented schemes | 1.25% | 1.00% |
| Close-ended schemes other than equity-oriented | 1.00% | 0.80% |
For open-ended equity and debt schemes, the Base Expense Ratio will continue to be linked to assets under management, with higher limits for smaller AUMs and lower limits for larger funds.
Rationalisation of Brokerage Limits
The revised regulations have also rationalised brokerage limits for mutual funds. SEBI has lowered brokerage caps across both cash market and derivative transactions to better align costs with market realities.
| Transaction Type | Existing Cap (Including Levies) | Previous Cap (Excluding Levies) | New Cap (Excluding Levies) |
| Cash market transactions | 12 basis points | 8.59 basis points | 6 basis points |
| Derivative transactions | 5 basis points | 3.89 basis points | 2 basis points |
This move is expected to improve cost efficiency within mutual fund operations.
Simplification and Consolidation of Regulations
SEBI has undertaken a comprehensive restructuring of the regulatory framework to improve usability and compliance. Eligibility criteria for sponsors of Mutual Funds and Mutual Fund Lite have been streamlined, while the roles and responsibilities of Asset Management Companies and Trustees have been reorganised under common thematic headings.
Provisions related to prudential investment limits and valuation of securities have also been consolidated for better coherence and ease of interpretation.
Removal of Redundant Provisions
As part of the regulatory overhaul, SEBI has removed separate chapters on Real Estate Mutual Funds and Infrastructure Debt Fund schemes, as dedicated frameworks for these products already exist.
The revised regulations reflect a substantial reduction in overall size and complexity. The total number of pages has been cut from 162 to 88, while the word count has been reduced by approximately 54%. The number of provisos has been significantly lowered, and most ‘notwithstanding’ clauses have been eliminated to improve readability and compliance clarity.
Conclusion
The SEBI (Mutual Funds) Regulations, 2026 represent a meaningful step towards a more transparent, efficient, and investor-friendly mutual fund framework. By lowering expense ratios, revising brokerage limits, and simplifying regulatory language, SEBI has reinforced its commitment to strong governance and clearer disclosure standards.
This updated regulatory structure is expected to enhance trust, improve cost transparency, and support the continued development of India’s mutual fund ecosystem in a more structured and accessible manner.
