SEBI Mutual Fund Rules 2026: key changes from April

A new rulebook replaces the 1996 framework

SEBI approved the SEBI (Mutual Funds) Regulations, 2026 on December 17, 2025, replacing the framework that has been in place since 1996. The new regulations become effective from April 1, 2026. On social media, the reforms are being framed as a “bonanza” or “freebies” for investors, largely because the changes are heavily investor-facing. The more precise description is that SEBI is pushing cost transparency, tighter labels, and cleaner comparisons across funds. The changes follow a consultation paper dated October 28, 2025 that aimed to simplify language, remove redundancies, and align rules with the evolving market. The backdrop is a fast-growing mutual fund industry described as around a $100 billion fund market, with official comments also citing AUM crossing Rs 72 lakh-crore and monthly SIPs touching Rs 28,000 crore. SEBI has positioned mutual funds as a key pillar for inclusive financial growth while keeping investor protection central. The result is a regulatory reset that touches fees, disclosures, portfolio construction, and scheme categorisation.

BER replaces TER and changes how costs appear

A headline change is the shift from the existing Total Expense Ratio (TER) model to a Base Expense Ratio (BER) model from April 2026. Under the new approach, AMCs must report BER as the core expense ratio for managing investors’ money. Other costs such as STT, stamp duty, and GST are to be reported separately, rather than bundled into a single TER number. Social media discussions have focused on the idea that expense ratios will look lower, and SEBI’s own framing in the context shared is that this is about transparency rather than an automatic cost cut. A commonly cited structure is: Total Expense = Base Expense Ratio + Brokerage + Regulatory Levies + Statutory Levies. For investors, the practical impact is improved visibility on what is a fund-management cost versus what is a tax or transaction-linked levy. This also changes how investors should compare funds across categories, because the “base” number is no longer a catch-all. The intent, as discussed online, is that investors can finally see how much they are actually paying to the AMC to run the fund.

Brokerage caps tighten and an extra allowance is removed

Another heavily discussed change is brokerage caps, because it directly affects trading cost leakage. In cash market transactions, the brokerage cap is reduced from 12 bps to 6 bps. In derivatives, the cap is reduced from 5 bps to 2 bps. SEBI has also eliminated the additional 5 bps that was permitted for schemes with exit loads, removing a layer of allowable expense. Reddit threads have linked higher brokerage limits to incentives for unnecessary buying and selling, and to paying for bundled services like research through trading costs. The new caps, as described in the shared context, are designed to curb excessive trading costs that ultimately fall on investors. The same discussion notes that unbundling research and reducing brokerage may be harder for smaller fund houses that rely on externally bundled research. Larger AMCs with in-house teams may be better placed to absorb the transition. For investors, the immediate takeaway is not that trading becomes free, but that the ceiling on what can be charged becomes meaningfully lower.

Passive funds and category caps get more attention

The new regime also tightens how expenses are framed across categories, especially where investors expect low costs. The context shared highlights a new 0.9% expense cap for Index Funds and ETFs. It also cites caps for Equity Close-Ended Funds (capped at 1%) as part of the revised base expense limits mentioned alongside the BER framework. Social commentary around these limits tends to treat them as a direct cost cut, but the more consistent message in the same discussion is that the big shift is disclosure quality and comparability. In practical terms, investors in passive products are likely to watch whether funds cluster near the cap and how tracking outcomes evolve, because expenses are only one part of passive performance. Investors comparing active and passive options will need to separate BER and other levies, rather than comparing a single TER number across the board. For distributors and AMCs, changes in what can be charged and how it is shown may alter how schemes are marketed and positioned. The broader outcome is that investors get clearer cost labels, especially in categories where “low cost” is part of the proposition. This is also why social media has framed the changes as investor-friendly even when immediate savings are not guaranteed.

“True to label” is tightened through allocation and naming norms

Beyond fees, SEBI’s “true to label” philosophy is a major theme in the social chatter. One item flagged in the shared context is that SEBI has increased the minimum equity allocation to 80% from 65% for certain types of equity mutual fund schemes. The basic principle is straightforward: if a scheme is labelled as an equity fund, it must behave like one. Separately, SEBI has introduced a classification overhaul intended to curb portfolio overlaps and reduce confusion across categories. Asset managers may continue to offer both value and contra funds, but overlap between the two cannot exceed 50%. Thematic equity schemes must also limit overlap with other thematic or equity categories to 50%, except large-cap funds. SEBI has also required AMCs to publish monthly category-wise overlap disclosures on their websites. For investors, this makes it easier to spot when two schemes are effectively the same product with different labels. It also increases pressure on fund houses to maintain distinct strategies where they offer multiple schemes in similar buckets.

Equity funds can use gold, silver, and InvITs in the residual bucket

One of the more debated updates is portfolio flexibility for actively managed equity funds. SEBI has allowed actively managed equity schemes, after meeting core allocation requirements, to invest the residual portion up to 35% of assets in gold and silver instruments, and in units of infrastructure investment trusts. This broadens the toolkit beyond money-market and liquid securities for that residual allocation. The move arrives at a time when demand for hard assets has been rising globally, and the context notes that in January Indian investors put more money into gold ETFs than into equity funds, which was described as a rare reversal. Hybrid funds are also permitted to invest in gold and silver ETFs under the updated approach. The policy design tries to preserve the primary mandate by requiring the core allocation first, while still allowing non-equity instruments in the remaining slice. Social media has interpreted this as SEBI “allowing equity funds to buy gold,” which is directionally true, but it is specifically framed as residual flexibility after core requirements are met. For investors, the relevant questions become how the 35% residual is used, how it affects risk, and whether the fund remains consistent with its label. The change can also create incremental institutional demand in precious metals, while still keeping equity schemes anchored to equity-heavy portfolios.

Timelines, mergers, and what changes immediately

SEBI has also set different timelines for scheme alignment under the new classification and overlap norms. Thematic funds have three years to comply with the new overlap limits, while other schemes must align within six months. That difference is being discussed online as a practical concession, given how thematic portfolios can resemble broader sector or factor exposures. Another significant step is the discontinuation of solution-oriented schemes with immediate effect, with existing plans directed to stop subscriptions and merge into comparable schemes, subject to regulatory approval. At the same time, SEBI has approved a new category of life-cycle or target-date funds designed for goal-based investing, including retirement planning. This combination of discontinuation and new product approval is being read as SEBI reshaping the product shelf rather than simply adding more categories. In parallel commentary from a SEBI executive director, the regulator also said it is reviewing scheme categorisation norms to make them more intuitive and prevent mis-selling. The same set of remarks mentions that the investor base remains limited to about five crore in a population of 140 crore, a gap that amplifies the need for clearer products and disclosures. For investors holding affected schemes, the practical focus is on communications from the AMC about subscription stops, merger proposals, and any required investor actions. For new investors, the bigger shift is that labels and categories should become easier to understand and harder to game.

Digital-first disclosures and a shorter, simpler rulebook

A less flashy but important part of the reform is simplification of the regulatory text and the compliance process. The shared context says the rulebook has been modernised and shortened, cutting total pages by 44% from 162 pages to 88 pages. It also says word count has been cut by about 54% from roughly 67,000 words to about 31,000 words. SEBI is also shifting toward digital-first disclosures, replacing physical filings and newspaper advertisements in favour of online disclosures and submissions. Social media discussions have linked this to faster, more standardised information flow, although it also places more responsibility on investors to check AMC websites and official documents. For AMCs, a digital-first approach can reduce friction in compliance, but it also increases the speed at which disclosures become public and comparable. The combined effect of BER reporting, overlap disclosure, and digital publication is a market where it should be harder to hide costs or strategy drift behind complex documentation. Investors should expect the expense presentation on factsheets and disclosures to change, with greater separation of base costs and levies. The reforms do not remove market risk, but they aim to remove avoidable confusion and hidden cost structures. In short, the “freebie” narrative is better understood as a transparency and classification upgrade that changes how mutual funds explain what they do and what they charge.

What investors can do from April 2026

The practical investor checklist begins with reading the new expense disclosures correctly. If BER is shown separately from statutory levies and brokerage, investors should compare like-for-like across funds and categories. Investors in thematic, value, and contra funds should watch the monthly overlap disclosures to understand whether multiple schemes are truly diversifying their exposure. Investors who prefer equity funds should also note changes in minimum equity allocation rules for relevant scheme types, because it affects how “equity-like” a scheme must remain. For those interested in gold exposure, the new residual allocation flexibility in equity and hybrid schemes adds another route beyond standalone gold ETFs, but it should be evaluated against the scheme’s stated mandate. Holders of discontinued solution-oriented schemes should track subscription stoppage notices and merger communications from AMCs. Investors using passive funds should track expenses in light of the cited cap for index funds and ETFs and focus on consistent disclosures. Across all categories, SEBI’s push suggests that labels and costs will be more comparable, making it easier to shortlist funds on objective parameters. The core change is that the investor gets a cleaner breakdown of what is charged, where overlap exists, and whether the fund’s behaviour matches its name.