SEBI (Mutual Funds) Regulations — Overview

The mutual fund industry in India has transformed dramatically since the early days when UTI was the sole significant player and regulatory oversight was minimal. SEBI's introduction of the 1996 Regulations was a watershed moment that professionalized the industry. Now, with the SEBI (Mutual Funds) Regulations, 2026 taking effect from April 1, 2026, the framework has been modernized and streamlined while retaining robust investor protections. These regulations serve as the constitution of the mutual fund industry. They cover everything from how a mutual fund is established (registration) to how it is wound up. The key chapters that NISM VA exam candidates must know include: Registration, Constitution and Management, Schemes, Investment Restrictions, Fees/Accounting/Valuation, and Inspections and Penalties. Among the notable changes in the 2026 Regulations: the new TER framework now separates Base Expense Ratio (BER), Brokerage, and Regulatory/Statutory levies. Brokerage caps have been reduced (Cash market from 12bps to 6bps, Derivatives from 5bps to 2bps). The additional 5bps exit load allowance has been removed. Performance-linked expense ratios are now permitted. Scheme categories expand from 36 to 40, adding Life-Cycle Funds and Sectoral Debt Funds, while Solution-Oriented Schemes are being discontinued. Portfolio overlap caps of 50% have been introduced for thematic/sectoral funds, with mandatory monthly disclosure of category-wise overlap. SEBI has also introduced a voluntary debit freeze facility for folios, effective April 30, 2026. Over the years, SEBI has issued hundreds of circulars amending and updating these regulations — TER limits, risk-o-meter, side-pocketing, categorization norms — all building on the regulatory framework. Distributors do not need to memorize every regulation number, but understanding the spirit and structure of these rules is essential because they directly affect how products are sold, serviced, and recommended to clients.