What Investors Should Know About SEBI's New Mutual Fund Regulations, Effective April 1, 2026

The mutual fund sector in India is about to undergo a significant change. Regulations that have been in effect for more than 30 years have now been overhauled by the Securities and Exchange Board of India. These modifications, which are scheduled to come into effect from April 1, 2026, are intended to improve investor protection, strengthen governance, and increase transparency.

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An Innovative Method for Expense Ratios

One of the key changes is the introduction of a Base Expense Ratio (BER), which may include performance-linked components. Traditionally, mutual funds charged investors through a Total Expense Ratio (TER) that combined a number of expenses. Under the revised framework, SEBI has allowed fund houses to introduce performance-linked fee structures, subject to specified conditions.

The Total Expense Ratio (TER) will continue to exist, but with a clearer breakdown of its components. This approach aims to better align fund managers' interests with those of investors. The fund house may earn more if a fund performs well, while expenses may remain stable otherwise, making the fee structure more outcome-oriented.

A Clearer Breakdown of Costs

The disclosure of expenses is another significant change. The new framework introduces greater clarity by distinguishing between the base expense (the fee for managing funds) and other costs such as brokerage, securities transaction tax, stamp duty, and exchange fees, while providing a clearer breakdown of charges within the TER structure.

This change is important because it gives investors a clearer picture of where their money is going. With better visibility into costs, comparing mutual fund schemes becomes easier and more meaningful.

Stronger Governance and Oversight

SEBI has strengthened governance norms by expanding the responsibilities of trustees and senior management within asset management companies (AMCs). These stakeholders will now have greater responsibility in ensuring compliance, risk management, and ethical operations.

By tightening governance standards, the regulator aims to reduce conflicts of interest and improve accountability across the industry.

Reduced Brokerage Costs

The new framework also addresses trading costs. The framework proposes tighter limits on brokerage and transaction-related expenses, aimed at reducing the overall cost of managing funds.

Lower transaction costs could ultimately benefit investors by reducing the expenses associated with actively managed schemes.

What Investors Should Know About This

These changes aim to enhance transparency, accountability, and investor alignment in the mutual fund industry. However, investors may need to pay closer attention to disclosures and understand the revised fee structures.

Even though the new system provides greater clarity, careful evaluation will still be necessary to make informed investment decisions.

For Reference:

• SEBI (Mutual Funds) Regulations, 2026 — Official Gazette Notification, January 16, 2026
https://www.sebi.gov.in/legal/regulations/jan-2026/securities-and-exchange-board-of-india-mutual-funds-regulations-2026_99173.html