SEBI Mutual Fund Scheme Changes 2026: New Regulations, BER Model And What Investors Must Know

On 9 December 1996, the comprehensive Securities and Exchange Board of India (Mutual Funds) Regulations 1996 were implemented, followed by amendments from time to time. However, since then, the mutual fund landscape has changed drastically. In 10 years, the mutual fund industry grew 6-fold, from INR 12.33 trillion as of 31 March 2016 to INR 73.73 trillion as of 31 March 2026. 

However, besides exponential growth, the digitisation, modernisation, and emergence of novel mutual fund categories have transformed the mutual fund space. In such a scenario, the SEBI (Mutual Funds) Regulations 2026 have brought in a major overhaul to streamline mutual fund investing.

This blog closely analyses the SEBI mutual fund scheme changes in 2026 to help investors update their investment and research strategy. The objective is to equip investors with sufficient information about the new updates, so that they can understand the impact of these changes on themselves and manoeuvre investments accordingly.¹

SEBI Mutual Fund Regulations 2026 Overview

On 14 January 2026, SEBI released the new mutual fund regulations, called the SEBI (Mutual Funds) Regulations 2026. The updated laws would take effect in stages, starting from 1 April 2026. The most important update, ushered in by the new SEBI regulations, concerns how mutual funds represent costs. Instead of one single TER number, fees would now be broken into parts, aiding a more nuanced investor understanding. Furthermore, new fund categories are introduced, and funds would now have to align with their category rules more. 

The SEBI mutual fund scheme changes in 2026 aim to address the following concerns.

1. Cost Transparency: A detailed cost breakup can help investors understand the nuanced details of mutual fund investing. This will aid in optimal understanding of the real returns they can expect to generate from their fund.

2. True Representation: As per the new guidelines, mutual funds would now have to invest in assets that align with their name and claimed risk-return profile. The fund portfolio would become truly representative of its name, resulting in informed investing.

3. Enhanced Accountability: The primary objective is to increase the accountability of the mutual fund to its investors through thorough and fair representation of information.

4. Streamline Regulations: The new regulations are more concise and in tune with the modern mutual fund landscape.

Let us now take a closer look at the most important update relating to the BER or Base Expense Ratio in mutual funds.

BER Update: Base Expense Ratio In Mutual Funds

Initially, the Total Expense Ratio (TER) was a single number that represented all mutual fund costs, including management fees, brokerage costs, taxes, and so on. The new guidelines addressed this and ensured the availability of a detailed cost breakdown to help investors understand mutual fund costs in a nuanced manner.

Under the SEBI Mutual Fund Regulations 2026, total costs are now split into parts.

• The Base Expense Ratio (BER) shows the fees charged by the fund house to manage and enable mutual fund investing.
• Other costs like brokerage and taxes, including STT, GST, stamp duty, etc., are shown separately.

Therefore, the total cost under the new scheme is now represented based on distinct categories, as illustrated through the formula below.

Total Cost = BER + Brokerage Fees + Taxes

The table below compares the mutual fund TER vs BER in India.

Furthermore, the new regulations have also specified Base Expense Ratio limits for different fund categories. The table below lists some of them

This new change means a greater understanding for investors. The investors can now analyse the costs deducted from their mutual fund returns, component-wise, resulting in a better understanding of real returns. Furthermore, a set limit to expense ratios can lead to a reduction in costs charged by funds, yielding better returns for investors.

However, not just this, the new overhaul ushered in several changes, including new guidelines for the Life Cycle Fund by SEBI in 2026. Let us analyse each of them in detail.

Other Guidelines Of SEBI (Mutual Funds) Regulations 2026

The SEBI (Mutual Funds) Regulations 2026 also contain the MF Lite framework, which was first introduced in 2024 via a circular. Under the MF Lite framework of SEBI, a new mutual fund AMC category was introduced that manages passive schemes alone. Discussed below are its key takeaways.

• Lower entry threshold: The minimum net worth of an MF lite AMC can be INR 35 crore.
• Passive investment: This categorisation can be used for passive mutual funds only. Index funds, ETFs, and Fund of Funds that offer passive investments can avail this scheme.
• Lower compliance and operational burden: MF Lite AMCs do not need a separate Risk Management Committee (RMC). Instead, the Audit Committee absorbs the tasks of RMC, reducing costs. Furthermore, they have simplified disclosure requirements that ease operations.

SEBI has also undertaken mutual fund recategorisation in 2026. Under this, new fund categories are added, while some are removed. Furthermore, the regulator has also made portfolio mix requirements stricter to ensure that the fund's risk-return profile matches that claimed by its name. Explained here are some key takeaways.

• Introduction of Life Cycle Funds: A new category, called life cycle funds, replaced the old goal-oriented fund label. There are multi-asset funds that automatically adjust themselves based on life goals and tenures.
• Discontinuation of Solution-Oriented Schemes: Solution-oriented funds like retirement funds and children’s funds are phased out as a separate category. The existing funds would no longer accept fresh investments and would be merged into corresponding life cycle or other funds.
• Tighter definition and subcategorisation: The SEBI 2026 framework has made the existing framework relating to portfolio mix, category name, etc., more stringent to reduce category hopping and misinformation. For instance, previously, sectoral and thematic funds were often clubbed and used interchangeably, but now AMFI, in consultation with SEBI, is expected to come up with a list of approved sectors and themes under each.

Now, let us take a closer look at the timeline of implementing these changes.

Phase-Wise Implementation Timeline Table

Not all changes put forward by the SEBI Mutual Fund Regulations 2026 come into effect at once. The table below highlights the timetable.

Why It Matters For Retail Investors?

SEBI’s proposed fund categorisation changes are more than just technical updates. They directly impact how retail investors choose, track, and manage their mutual fund portfolios. Here’s why it matters:

Clearer Scheme Labels = Simpler Choices

Most funds today are similar-sounding but have different approaches. This frequently leaves first-time investors perplexed or results in redundant investments. With SEBI closing the loopholes in scheme descriptions and curbing overlaps, particularly between value and contra schemes, investors can now understand the schemes better.

No More Duplicate Schemes

A second scheme within the same category is allowed only after the initial scheme reaches maturity (5+ years) and reaches INR 50,000 crore AUM. This ensures AMCs do not introduce lookalike schemes without compelling justification. This avoids unnecessary bloat and maintains a centered product selection. This reduces duplication within your investment portfolio. 

Hybrid Options

By making room for REITs, InvITs, and even theme assets in residual parts of equity and hybrid schemes, retail investors now get to invest in diversified portfolios without directly buying complicated products. Solution-based funds with stated targets and lock-ins also simplify long-term planning. You can have greater exposure to various asset classes within a single fund. 

Transparent Risk And Return Expectations

Substituting confusing expressions such as "low duration" with specific "term-based" names makes it easier to gauge how long your money is tied up and what type of volatility to anticipate. It also enables improved goal matching, allocating a 3-year fund, for instance, to a short-term objective.

What Investors Should Do After SEBI’s 2026 Update?

SEBI's suggested changes are not only for fund houses. They directly impact how the fund houses manage your mutual fund portfolio. 

Here's an easy, actionable to-do list to help you stay ahead:

1. Review Your Portfolio for Overlapping Schemes

Begin by reviewing your current mutual fund holdings. Have you invested in a value and contra funds from the same AMC? If so, look for duplication of strategies. With the new rules, such duplication can be rationalised or exit options can be initiated.

2. Check Fund Names Against Your Investment Horizon

SEBI’s plan to replace vague terms with clear “term based” labels (like "3–4 year term fund") makes it easier to align your funds with your goals. Match each fund’s investment horizon with your personal timeline. Exit schemes that no longer fit.

3. Explore Residual Allocation via Grip’s Offerings

With leftover chunks of funds now being eligible to encompass REITs, InvITs, and other alternative assets, you have an opportunity to diversify indirectly. Apps such as Grip Invest provide handpicked fixed income products like SDIs (Secured Debt Instruments) and leasing options that can be added to your core MF investments. Use these to offset volatility and introduce predictable income.

4. Share Your Feedback with SEBI by August 8

SEBI has also sought public comments on these proposals by August 8, 2025. Your voice matters as a retail investor. Log in to SEBI's portal to express concerns, particularly if you need transparency in categories or rebalancing norms.

5. Rebalance and Add Alternatives

There is no better time than now to rebalance your portfolio. It may be a good idea to cut exposure to duplicate or underperforming mutual funds. Add alternatives such as corporate bonds, Secured Debt Instruments (SDIs), and target date funds (as and when they roll out). 

Conclusion

SEBI’s latest framework proposals mark a decisive step towards simplifying mutual fund investing for retail participants. From clearer scheme classifications to tighter controls on duplication and better alignment with investor goals, these reforms prioritise transparency, accountability, and ease of decision-making. 

For investors, now is the perfect moment to take a fresh look at fund holdings, eliminate duplications, and get ready for a more organized investing framework. With residual allocations creating new diversification opportunities and fund names providing greater transparency, retail portfolios can now be made more effective without becoming more complicated.

FAQs On Mutual Fund Scheme Changes in India

1. What does “portfolio overlap” mean in mutual funds?

Portfolio overlap refers to the extent to which two or more mutual fund schemes hold the same securities. High overlap between schemes (e.g., a value fund and a contra fund from the same AMC) may lead to redundancy. SEBI’s new framework limits such overlap to ensure distinct strategies and better diversification.

2. Can mutual funds still offer both value and contra schemes?

Yes, but under certain conditions. An AMC can provide value and contra schemes only if the overlap between the portfolios remains less than 50%. This principle prevents every fund from playing the same role and duplicating each other. If the overlap surpasses the limit, the AMC has to rebalance or provide investors with an exit without an exit load.

3. How will renaming debt schemes benefit me as an investor?

SEBI proposes replacing vague terms like “duration” with clear “term based” labels (e.g., “Short Term (1–3 years)”). This helps investors better understand a fund’s time horizon and risk level. It makes selecting a scheme aligned with your investment goals much easier and reduces confusion.

References

1. SEBI, accessed from: https://www.sebi.gov.in/legal/regulations/dec-1996/sebi-mutual-funds-regulations-1996_19376.html

2. Priority Courier, accessed from: https://prioritycourier.in/mutual-fund-update-major-regulatory-changes-to-reshape-investments/

Want to stay at the top of your finances? 

Join the community of 4 lakh+ investors and learn more about Grip Invest, the latest financial knick-knacks, and shenanigans in the world of investing.

Happy Investing!

Disclaimer - Investments in debt securities/municipal debt securities/securitised debt instruments are subject to risks including delay and/ or default in payment. Read all the offer related documents carefully. The investor is requested to take into consideration all the risk factors before the commencement of trading.
This communication is prepared by Grip Broking Private Limited (bearing SEBI Registration No. INZ000312836 and NSE ID 90319) and/or its affiliate/ group company(ies) (together referred to as “Grip”) and the contents of this disclaimer are applicable to this document and any and all written or oral communication(s) made by Grip or its directors, employees, associates, representatives and agents. This communication does not constitute advice relating to investing or otherwise dealing in securities and is not an offer or solicitation for the purchase or sale of any securities. Grip does not guarantee or assure any return on investments and accepts no liability for consequences of any actions taken based on the information provided. For more details, please visit www.gripinvest.in

Registered Address - 106, II F, New Asiatic Building, H Block, Connaught Place, New Delhi 110001