Mutual Fund Regulation
Why in news?
SEBI's board meeting on December 17, 2025, focuses on key mutual fund reforms. Proposals include overhauling Total Expense Ratio (TER) definitions and brokerage limits to boost transparency and cut costs.​
About Meeting and Recent Reforms
- The meeting reviews mutual fund fee structures, including clearer TER guidelines and removal of the extra 5 basis points (bps) AMCs could previously charge.
- Brokerage rule changes aim for zero-tolerance on conflicts, whistleblower mechanisms, and Chief Ethics Officer roles.​
- SEBI cut maximum exit loads from 5% to 3% in September, with most schemes already at 1-2%. MF-Lite eased compliance for passive funds like index funds and ETFs from March.
- From January 2026, REIT investments by mutual funds count as equity-oriented.​
Legal Framework
- SEBI (Mutual Funds) Regulations, 1996 – the primary legislation governing mutual funds in India.
- Objective: protect investors, promote development, and regulate the securities market.
Structure of Mutual Funds (as per SEBI)
- Sponsor – establishes the fund and seeks SEBI approval.
- Trustee – holds assets in fiduciary capacity, ensures compliance.
- Asset Management Company (AMC) – manages investments professionally.
- Custodian – safeguards securities and ensures settlement.
Key SEBI Guidelines
- Registration: Only SEBI-approved sponsors can launch mutual funds.
- Scheme Categorization: Standardized categories (equity, debt, hybrid, etc.) for comparability.
- Disclosure Norms: Mandatory offer documents, risk-o-meters, portfolio disclosures.
- Valuation Rules: Uniform methods for pricing securities.
- Expense Regulation: Total Expense Ratio (TER) capped; SEBI recently proposed reducing TER by 15–25 basis points.
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