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SEBI’s New (Mutual Fund) Regulations 2026: What Investors & Fund Managers must know? 

The Securities & Exchange Board of India (SEBI) mandated the new (mutual fund) regulations, 2026, on December 17, 2025, replacing the regulations issued in 1996. This change affects cost structures, expense disclosures, brokerage limits, and regulatory transparency.  

SEBI (mutual fund) regulations, 2026, aim to help investors clearly understand what they are paying for and why. Please read the blog to know how it directly impacts investors, fund managers, and the overall market. 

Replacement of Total Expense Ratio (TER) with Base Expense Ratio (BER) 

SEBI’s (new mutual fund) regulations, 2026, restructured the Total Expense Ratio (TER) framework. For years, investors have relied just on TER for a clear understanding of their costs. It included fund management fees with statutory fees such as GST, stamp duty, and Securities Transaction Tax (STT). However, it reduced the cost visibility for investors. SEBI Mutual fund registration seekers must know about this.  

Now that SEBI has designed a new framework, converting TER to BSR, which no longer restricts the fund management with statutory fees. Instead, these will be charged separately, and investors will obtain a clear breakdown of costs incurred. 

Revised formula under this structure:  

Total Expense = Base Expense Ratio + Brokerage + Regulatory Levies + Statutory Levies 

Now, the expense ratio might seem more balanced or appear low. It creates cost transparency rather than cost reduction for investors for accurate fund comparisons and better-informed investment decisions. For this, SEBI has reduced the base expense limits across categories (Index Funds and ETFs (capped at 0.90%), Equity Close-Ended Funds (capped at 1%)) up to 15 basis points (0.15%). 

Reduced Brokerage Caps to Control Trading Costs 

SEBI brought restrictions on mutual funds, incurs brokerage expenses that investors ultimately pay. Higher brokerage limits lead to excessive trading and increase costs without necessarily improving performance.  

Under the SEBI revised norms:  

• Cash market brokerage caps reduced from 12 bps to 6 bps. 

• Derivative brokerage caps dropped from 5 bps to 2 bps.  

Also, it addresses the two long-standing issues:  

• Unnecessary buying and selling of investments is encouraged by higher brokerage limits. 

• Paying for services like research indirectly by loading the cost into trading expenses.  

This aims to target the cost leakage and prevent fund managers from paying for bundled services. For investors, the more capital that is invested, the less is absorbed by transaction costs.  

Removal of the Exit Load Expense Allowance  

Previously, the mutual fund schemes with an exit load were permitted to charge an additional Five basis points (0.05%) as expense allowance. SEBI has removed this fee provision because, although it was a minimal amount, but it resulted in higher aggregate costs across the entire mutual fund sector. The SEBI board clarified that this was a temporary measure.  

Potential Impact on Smaller Mutual Fund Houses & Market Competition 

SEBI (mutual funds) regulations are investor-friendly for enhancing transparency. Besides, they may create challenges for smaller asset management companies. With brokerage caps reduced and research costs unbundled, it may disproportionately affect smaller fund houses.  

It is due to the dependence on research costs with brokerage services to compete with larger asset managers. These large fund houses with in-house research teams; better position themselves to handle this shift. Businesses with an asset management company registration must have a better idea of this. 

Modernised Mutual Fund Rulebook  

Beyond fees and expenses, SEBI has also undertaken a major simplification of the mutual fund regulatory framework itself. The mutual fund framework, issued in 1996, is well-comprehensive now: 

• Total pages reduced by 44% (from 162 pages to 88 pages) 

• Word count cut by approximately 54% (from 67,000 words to 31,000 words) 

• Shift towards digital-first disclosures, replacing physical filings and newspaper advertisements.  

Final Words: Structural Reset of SEBI (Mutual Funds) Regulations, 2026 

SEBI’s new 2026 mutual fund regulations mark a structural reset for the industry. It is one of the most significant regulatory shifts in decades. While investor costs may not decline immediately, the regulations deliver something equally critical; clarity and accountability.  

With great transparency in costs, strong brokerage controls, and unnecessary allowances have been removed. SEBI has placed transparency at the centre of investor protection through a streamlined rulebook.  But the prolonged question remains whether these changes will preserve competitive balance across fund houses?  

For founders and asset managers, this change in the SEBI regulatory framework provides greater clarity and accountability in aggregate costs. Mutual Fund Registration with SEBI now requires alignment across structures and operations. Get quick support from the expert team at Enterslice for complete registration, who have already assisted 2000+ SEBI-registered schemes, ensuring clarity and smooth execution for long-lasting investor trust.  

FAQs ON SEBI (MUTUAL FUND) REGULATIONS, 2026