New Mutual Fund Rules: SEBI Allows Performance-Based Expense Structure Starting April 2026

India’s mutual fund industry is set for a major regulatory shift. The Securities and Exchange Board of India (SEBI) has notified a comprehensive overhaul of mutual fund rules, allowing performance-linked expense charging for the first time. Approved in December 2025, the revised framework will come into effect from April 1, 2026, with a strong focus on transparency, governance, and investor protection.

Why in News?

The market regulator Securities and Exchange Board of India has notified new Mutual Fund Regulations, allowing schemes to charge performance-linked base expense ratios, along with enhanced disclosures and tighter governance norms, effective April 1, 2026.

About SEBI’s Changed in Mutual Fund Rules

• SEBI’s revised regulations mark the first comprehensive revamp of the mutual fund framework in nearly three decades.
• The changes introduce a new expense structure, stronger disclosure standards, and expanded responsibilities for trustees and senior management of Asset Management Companies (AMCs).
• The overarching objective is to ensure that investor costs are transparent, justified, and aligned with fund performance.

Performance-Linked Expense Charging Explained

• A key reform is the introduction of performance-linked expense charging.
• Under the new framework, mutual fund schemes may charge a base expense ratio (BER) linked to the performance of the scheme, subject to conditions specified by SEBI.
• This means AMCs can potentially earn higher fees only if they deliver better returns, aligning fund manager incentives more closely with investor outcomes.

Introduction of Base Expense Ratio (BER)

• The regulations introduce the concept of Base Expense Ratio (BER), which represents only the fee charged by the AMC for managing investors money.
• Earlier, all costs were bundled into the Total Expense Ratio (TER).
• Now, other charges such as brokerage, securities transaction tax (STT), stamp duty, and exchange fees must be disclosed separately.
• This separation is expected to significantly improve cost transparency for investors.

Stronger Disclosure and Transparency Norms

• With separate disclosure of costs, investors will gain a clearer picture of where their money is going.
• SEBI believes this will make expense structures easier to compare across schemes and AMCs.
• Market participants have welcomed the move, noting that large-sized funds may feel some impact, but overall transparency and investor confidence will improve.

Tighter Governance and Oversight

• The revised framework expands the roles and responsibilities of trustees and key managerial personnel of mutual funds.
• Oversight mechanisms have been strengthened to ensure that AMCs act in the best interests of investors.
• This is in line with SEBI’s broader approach of reinforcing governance standards across financial intermediaries.

Rationalization of Brokerage Caps

• SEBI has also rationalized brokerage limits to reduce trading costs.
• In the cash market, the brokerage cap has been reduced to 6 basis points (bps) from an effective 8.59 bps earlier.
• In the derivatives segment, the cap has been lowered to 2 bps from 3.89 bps.
• This move is expected to lower overall transaction costs for mutual fund schemes.

Key Summary at a Glance

Question

Q. Under the new SEBI rules, the Base Expense Ratio (BER) represents:

A. Total expenses of a mutual fund
B. Only AMC management fees
C. Brokerage and transaction costs
D. Investor entry and exit loads