SEBI has recently made important changes in mutual fund regulations. These rules have been updated after nearly 30 years.
While many reports are creating confusion, the real impact for investors is different from what is being claimed. Here’s a simple breakdown of what has actually changed and what it means for you.
TER Replaced by BER: What Actually Changed in Costs
One of the biggest updates is that the Total Expense Ratio (TER) system has now been replaced with the Base Expense Ratio (BER).
Many reports suggest that this will significantly reduce costs, but the reality is more modest.
According to research reports, active equity mutual funds may only see savings of around 5 to 7 basis points per year, not the 15 basis points being widely claimed.
For example, if you invest ₹10 lakh, the actual savings may be around ₹600 per year, which is helpful but not very large.
Another change is that expenses will now be shown in three separate categories instead of one, making cost breakdowns more transparent but also more detailed.
Key Structural Changes in Mutual Fund Rules
SEBI has not only changed the expense system but also simplified the rulebook significantly.
The mutual fund rulebook has been reduced from 162 pages to 88 pages
Brokerage charges have been cut
Cash market brokerage reduced from 12 bps to 6 bps
Derivatives brokerage reduced from 5 bps to 2 bps
The extra 5 basis points allowed for schemes with exit load has been removed
These changes aim to improve transparency and reduce hidden costs in the system.
Major Reform: Limits on Portfolio Overlap
One of the most important investor-friendly changes is the restriction on fund overlap.
Earlier, different thematic or sectoral funds often held almost the same stocks. This created a false sense of diversification.
For example, Technology, Innovation, and Digital India funds often had very similar top holdings.
Now, SEBI has introduced a rule that no thematic or sectoral fund can have more than 50% portfolio overlap with another similar fund. This will help investors actually diversify instead of unknowingly investing in the same stocks through multiple funds.
Introduction of Life Cycle (Target Date) Funds
SEBI has also introduced a new category called Life Cycle Funds (Target Date Funds) in 2026.
These funds are designed for long-term goals like retirement. For example, a “2050 Retirement Fund” will:
Start with higher equity exposure
Gradually shift towards debt as retirement approaches
Automatically adjust asset allocation over time
Who can benefit?
Investors who do not want to actively rebalance their portfolio
Long-term investors planning for retirement
Caution
Experts suggest that in some cases, a simple 70:30 equity-debt hybrid fund strategy may still be cheaper and more effective.
What Has Not Changed
Despite all the reforms, some key things remain the same:
SIP investments continue as usual
Existing mutual fund folios remain safe
Tax rules have not changed
Cut-off timings for transactions remain the same
What Investors Should Do Now
Investors should take this opportunity to review their portfolios. Check your fund factsheets and see whether your funds are truly diversified or overlapping heavily.
Also, from August 2026, overlap reports will become available. These reports will help identify duplicate holdings across funds, making it easier to simplify your investments.
Be careful with new “performance-linked” share classes offered by AMCs. If terms like hurdle rate or high-water mark are unclear, it is better to avoid them.
