As the new financial year begins, Securities and Exchange Board of India (SEBI) has rolled out a wide set of changes for the mutual fund industry. These are not market calls or strategy shifts, but structural changes aimed at improving transparency, standardisation, and investor protection.
One of the most noticeable changes is in how mutual fund costs will be shown. Until now, investors typically saw a single Total Expense Ratio (TER). Going forward, this will be split into two parts, the Base Expense Ratio (which is controlled by the fund house) and external charges such as brokerage, taxes, and regulatory levies. At the same time, the additional 5 basis points that fund houses were allowed to charge has been removed. The idea here is not just cost reduction, but clarity. Investors will now be able to see exactly what they are paying for fund management versus other unavoidable charges.
Another important shift is the removal of the ‘solution-oriented’ category. Retirement funds and children’s funds will no longer exist as a separate category and will be merged into other schemes with similar investment profiles. In their place, a new category called Life Cycle Funds is being introduced. These are designed around long-term goals, where the asset allocation automatically changes over time. For example, a fund with a longer horizon may start with higher equity exposure and gradually move towards debt as it approaches maturity. These funds will be offered across different time horizons, ranging from 5 years to 30 years.
There is also a strong push to ensure that funds stay true to what they claim. Sectoral and thematic funds will now have stricter limits on how much they can overlap with other equity schemes. This means a fund labelled as ‘pharma’ or ‘defence’ will need to genuinely reflect that theme, rather than resembling a diversified portfolio in disguise. Existing schemes have been given time to align with these rules.
In a related move, fund houses are now allowed to offer both value and contra funds, something that was not permitted earlier. However, there is a condition that the portfolios of these funds should not overlap beyond a certain level, ensuring that each strategy remains distinct.
The regulator has also expanded what equity mutual funds can invest in. These funds can now allocate a portion of their portfolios to gold and silver, along with instruments like infrastructure investment trusts. This adds another layer of diversification within equity schemes, especially during uncertain market conditions. Alongside this, the way gold and silver ETFs are valued is changing. Instead of relying on international benchmarks, fund houses will now use domestic spot prices published by Indian exchanges, making valuations more aligned with local markets.
Transparency is also being improved through new disclosure norms. Mutual funds will now publish monthly data on how much their schemes overlap with each other. This gives investors better visibility into whether they are indirectly holding similar stocks across multiple funds.
On the debt side, a new category called sectoral debt funds has been introduced. These funds will focus on lending to specific sectors such as infrastructure, financial services, or housing, provided there is sufficient availability of high-quality bonds. This opens up more targeted options within debt investing.
A new layer of investor protection
There are also a few operational and safety-related changes. Rules around short-term borrowing by mutual funds have been eased for intraday needs, mainly to help fund houses manage liquidity more efficiently. More importantly for investors, a new debit freeze facility is being introduced. Through platforms like MF Central, investors will be able to temporarily block transactions in their mutual fund folios, adding an extra layer of protection against unauthorised activity.
Overall, these changes are not about changing how markets behave, but about improving how mutual funds are structured and presented to investors. For someone investing regularly, the impact will be gradual clearer cost disclosures, better alignment between fund labels and actual portfolios, and slightly more flexibility in how funds are managed.
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