SEBI Unveils Sweeping Overhaul of Mutual Fund Rules, Proposes Tighter Expense Norms

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SEBI has released a consultation paper proposing a comprehensive revamp of mutual fund regulations. The key reforms include excluding taxes, statutory levies, and brokerage from TER, slashing brokerage limits on cash market trades, and enforcing stricter segregation for non-mutual fund businesses under trustee oversight to enhance transparency and investor protection.

The Securities and Exchange Board of India (SEBI) has proposed a sweeping review of its mutual fund framework under a new consultation paper, signaling a decisive move to enhance cost transparency, governance standards, and investor protection across the mutual fund industry.

Key developments at a glance:

SEBI has recommended that taxes and statutory levies be excluded from the computation of the Total Expense Ratio (TER), ensuring that only genuine operating expenses are covered under investor fees.
Brokerage costs are also proposed to be removed from the TER, making fee disclosures cleaner and more comparable across schemes and fund houses.
The regulator has suggested reducing brokerage fees charged by funds for cash market transactions from 12 basis points to 2 basis points, significantly curbing distribution costs.
To strengthen governance, SEBI has proposed that fund houses engaging in non-mutual fund related activities operate such businesses as distinct units separated by ‘Chinese walls,’ preventing any overlap or misuse of mutual fund resources.
Trustees will be mandated to exercise stricter oversight, particularly regarding fees and diversion of resources linked to non-mutual fund services.

These proposals, announced through a consultation paper, reflect SEBI’s intent to make mutual fund operations more transparent and investor-centric, while addressing long-standing industry concerns about hidden costs and conflict of interest. The changes, if implemented, are expected to reshape how Asset Management Companies (AMCs) allocate expenses and manage their parallel business interests.

According to regulatory officials, the move forms part of SEBI’s broader agenda to simplify fee structures and build investor trust in the mutual fund ecosystem, a sector that has seen rapid expansion and rising retail participation in recent years. Industry feedback on the proposals is invited before final regulations are framed.

Sources: Reuters, SEBI Consultation Paper, NSE Updates

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