mutual fund regulations to make them simpler, cheaper, and more transparent. These updates aim to protect investors’ money and help them earn better returns.
Many small investors who cannot closely track stock market movements often prefer to invest through mutual funds.
Size and Structure of the Mutual Fund Industry
As of September 30, 2025, India’s mutual fund industry had total assets (AUM) worth ₹75.61 lakh crore and 251.9 million investor accounts (folios).
SEBI regularly updates mutual fund rules to safeguard investors’ interests. All mutual funds — public, private, or foreign — must follow the same regulations.
SEBI also issues circulars from time to time to ensure investor protection.
What is a Mutual Fund?
A mutual fund is like a pool of money collected from many investors. The fund manager invests this money in stocks, bonds, or other assets.
Each investor receives units and becomes a unit holder. Profits or losses are shared in proportion to the amount invested.
Because the money is spread across different companies, the risk is lower, and investments are handled by professional managers.
Brief History of Mutual Funds in India
1963 – The Unit Trust of India (UTI) was established as the first mutual fund.
Late 1980s – Public sector banks and financial institutions were allowed to start mutual funds.
1992 – The SEBI Act was passed to regulate and promote the securities market and protect investors.
1993 – The first mutual fund regulations were introduced by SEBI.
Role of SEBI in Mutual Funds
SEBI’s main responsibilities include:
Protecting investor interests.
Creating and enforcing rules for mutual funds.
Supervising fund houses and their operations.
Before collecting money from the public, every mutual fund must be registered with SEBI. Mutual fund houses also launch different schemes with specific investment goals under SEBI’s oversight.
Why SEBI Changed the Rules
Over the last 29 years, mutual fund regulations became too complex due to multiple amendments.
To simplify them, SEBI began a comprehensive review to make the system easier to understand and more investor-friendly.
Key Changes Introduced by SEBI
Performance-Based Fees:
Asset Management Companies (AMCs) can now charge performance-linked expense ratios, meaning investors pay higher fees only when funds outperform their benchmark returns.
No Double Charging for Research:
SEBI has stopped double billing for research costs (earlier charged through both management fees and brokerage).
Clear Cost Responsibility:
The cost of launching and marketing a fund must now be paid by the AMC, not investors.
Lower Total Expense Ratio (TER):
The TER, which covers annual fund management costs, has been reduced across categories:
| Scheme Type | Old TER | New TER | Reduction |
|---|---|---|---|
| Open-ended (Equity) | 2.25% | 2.10% | 0.15% |
| Closed-ended (Equity) | 1.25% | 1.00% | 0.25% |
| Closed-ended (Non-equity) | 1.00% | 0.80% | 0.20% |
| Index Funds/ETFs | 1.00% | 0.85% | 0.15% |
| Fund of Funds (65%+ Equity) | 2.25% | 2.10% | 0.15% |
| Other Fund of Funds | 2.00% | 1.85% | 0.15% |
Increased Transparency for Investors
GST, STT, and Stamp Duty will now be shown separately from TER.
Research costs will be borne only by the AMC.
Fund launch and marketing costs cannot be passed on to investors.
The extra 5 basis points (bps) fee for schemes with exit loads has been removed.
