The Securities and Exchange Board of India (Sebi) has proposed a sweeping revamp of the mutual fund (MF) regulatory framework, aiming to simplify rules, increase transparency, and reduce costs for investors.
In a consultation paper released on Tuesday (October 28), Sebi said the mutual fund industry has evolved substantially over the past three decades in terms of scale, technology, and investment practices, necessitating a comprehensive review of existing regulations.
“Over the last 29 years, numerous amendments have made MF regulations lengthy and complex. Hence, Sebi has undertaken an exercise to comprehensively review and simplify them,” the paper stated.
Revised Fee and Brokerage Structure
As part of the proposed changes, brokerage charges have been sharply reduced to protect investors.
- For cash market transactions, the fee will drop from 12 basis points (bps) to 2 bps.
- For derivatives transactions, the charge will be cut from 5 bps to 1 bps.
Sebi said these changes are aimed at improving clarity, transparency, and investor protection.
Simplified Rules for MFs and MF Lite
The consultation paper also introduces clearer eligibility criteria for sponsors and registration norms for both full-scale mutual funds and simplified MF Lite structures.
Additionally, Sebi has standardized the rights and obligations of trustees and asset management companies (AMCs), and specified new valuation guidelines for greater consistency across the sector.
Expense Ratio Reforms
Sebi has proposed that expense ratio limits be made exclusive of statutory levies, ensuring that investors have a clearer picture of the actual costs being charged by fund houses.
Previously, AMCs were allowed to charge an additional 20 bps as extra expense after exit loads were mandated to be credited to the scheme instead of being used to pay distributors.
Focus on Governance and Oversight
The regulator has also directed mutual fund trustees to ensure that conflicts of interest highlighted in the consultation paper are adequately addressed through proper oversight mechanisms.
Public Feedback Invited
Sebi has invited public comments on the proposals until November 17, after which the final regulations are expected to be framed.
The move reflects Sebi’s ongoing efforts to simplify regulatory language, eliminate redundant provisions, and make compliance easier while keeping investor protection at the core.
