SEBI’s new Mutual Fund reforms: what changes for investors?

The Indian mutual fund market has been getting a fresh perspective, and it has indeed been a major one! In the month of December 2025, on the 17th, SEBI granted approval for a new regulatory regime, that is, the SEBI (Mutual Funds) Regulations, 2026, which marks a radical change from the current system that has existed since 1996. These new regulations are effective from April 2026 and deal with a wide range of issues, including fees and nomenclature.

Lower costs, greater clarity

The most investor-centric amendment is that related to the new TER model, which will be introduced by replacing the existing TER model with a BER model. As per the new model, effective from April 2026, the Securities and Exchange Board of India (SEBI) will make it obligatory for AMCs to report the BER figure, which will reflect only the expense ratio for managing the investors' money, whereas other expenses like STT, stamp duty, and GST will be reported separately. Hence, under the new amendments, you would finally get to know how much you are actually paying.

In addition to the above, SEBI has also reduced the brokerage caps considerably. In the case of cash market transactions, the cap has been reduced from 12 bps to 6 bps, while in the case of derivative transactions, the cap has been reduced from 5 bps to just 2 bps. Additionally, the extra 5 bps, which was permitted in the case of schemes with exit loads, has been eliminated.

True-to-Label: no more fund name games

The most significant change for the average investor could be the clampdown on misleading names. ‘Wealth Builder,’ ‘High Growth,’ ‘Power Gains,’ etc., are now prohibited words in mutual fund schemes. The name of the mutual fund scheme must match the name of its category. There is no scope for creative liberty in the name.

This is part of the "true to label" philosophy. SEBI has also increased the minimum equity allocation to 80% from 65% for certain types of equity mutual fund schemes. If the mutual fund is an equity fund, then it must behave like an equity fund.

Fixing the closet indexing problem

For investors holding multiple thematic or sectoral funds, SEBI has addressed a long-standing concern. Sectoral and thematic equity funds can no longer have more than 50% portfolio overlap with other equity schemes from the same AMC (excluding large-cap schemes). This directly tackles closet indexing, the practice of repackaging similar portfolios under different theme labels while charging a premium.

New fund categories and a simpler rulebook

The number of mutual fund schemes has been expanded from 36 to 40 different schemes with a focus on schemes such as Life Cycle Fund and Debt Sector Funds in order to align with investors' needs and risk profile. Life Cycle Fund has a predefined glide path wherein the dominance of equities slowly gives way to safer securities based on a target date for maturity.

In terms of compliance, the new rules have resulted in a decrease of 44% in the total number of pages and 54% in the total number of words in the regulations.

Conclusion

All these changes indicate the maturing nature of the market, where investors' interests are being catered to. Your existing portfolio of mutual fund schemes should be reviewed, and the distinctiveness of thematic schemes, the new fee structure, and the possibility of mergers and renaming schemes over the next 12-18 months should be checked. The rules are becoming more transparent, and the time is opportune to make sure you are being honest as well.