The Securities and Exchange Board of India (SEBI) announced a comprehensive revamp of the country’s mutual fund regulations on Tuesday, October 28—the first major review in nearly three decades. This extensive overhaul is driven by the regulator’s commitment to simplify rules, significantly reduce costs, and enhance transparency for the rapidly growing investor base. SEBI has released a detailed consultation paper on the draft proposals and is actively seeking public feedback until November 17, 2025.
The key proposals target the Total Expense Ratio (TER) structure to ensure investors retain more of their returns. SEBI has proposed a drastic cut in brokerage fees for equity schemes, reducing the maximum permissible charge from 12 basis points (bps) to just 2 bps for cash market transactions. For derivatives, the cap will drop from 5 bps to 1 bp. This measure addresses concerns that investors were effectively paying twice for research.
Further reducing investor costs, SEBI plans to eliminate the additional 5 bps expense currently recovered through exit loads, a charge introduced as a transitory measure in 2012. To offset this for Asset Management Companies (AMCs) that manage smaller funds, the regulator has proposed a simultaneous 5 bps upward revision in the lowest two TER slabs for open-ended active schemes.
A significant focus is placed on enhancing transparency. SEBI has recommended that all statutory levies, such as GST, STT (Securities Transaction Tax), and stamp duty, be excluded from the overall TER limits and disclosed separately. This will give investors a clearer breakdown of what they pay for fund management versus government taxes. Additionally, fund houses would no longer be permitted to charge investors for new scheme launch (NFO) expenses; these must now be borne entirely by the AMC.
The reform also pushes for a digital-first approach: all scheme information and disclosures will be published on official websites, and annual reports and account statements will be shared with investors digitally by default. This shift aims to reduce paperwork, lower costs, and align the industry with modern information consumption habits.
Finally, SEBI plans to streamline the ecosystem by phasing out less popular categories like capital protection and real estate schemes. Governance will also be tightened, with proposals to reduce mandatory trustee meetings and set minimum experience requirements for senior executives, aiming to boost management quality and investor confidence across the sector. Analysts warn that while the changes benefit investors, they could negatively impact the profitability of AMCs and institutional brokers in the short term.
