SEBI introduces new rules for mutual funds, stock brokers
What's the story
The Securities and Exchange Board of India (SEBI) has approved a major overhaul of regulations governing mutual funds and stock brokers. The move is aimed at simplifying rules, reducing costs for investors, and easing compliance for market intermediaries. The new regulations will replace the three-decade-old framework for stock brokers and the nearly three-decade-old framework for mutual funds with modern ones that reflect current market practices.
Regulatory update
New framework for stock brokers
The new SEBI (Stock Brokers) Regulations, 2025, will replace the existing rules from 1992. The updated framework organizes broker regulations into 11 chapters and consolidates rules previously spread across circulars. It also updates definitions of proprietary trading and clearing members while removing references to obsolete practices like physical share delivery. The revised regulations cut down the length of the rulebook by almost half, making it easier for brokers and investors to understand compliance requirements.
Regulatory simplification
Mutual fund regulations simplified
The board has also approved a complete rewrite of the mutual fund regulations, paving the way for the new SEBI (Mutual Funds) Regulations, 2026. While the core investor protection framework remains unchanged, these revised rules simplify language and consolidate provisions. A major change is in how expense ratios are calculated. They have been renamed as Base Expense Ratios with statutory levies such as GST, stamp duty and transaction taxes now charged separately on actuals.
Expense reduction
Base expense limits reduced for various schemes
Under the new framework, SEBI has reduced the base expense ratio for close-ended equity schemes to 1% from 1.25%, and for close-ended non-equity schemes to 0.8% from 1%. Index funds and exchange-traded funds will see their Base Expense Ratios cut down to 0.90% from an earlier cap of 1%. Funds of funds investing in liquid index ETFs will also have a similar cap under the new rules.
Brokerage reduction
Lower brokerage caps for cash, derivatives transactions
SEBI has also lowered brokerage caps for cash and derivatives transactions. The board approved a reduction in the cap on cash market brokerage to 6 basis points, excluding statutory levies. In the derivatives segment, this cap has been further reduced to 2 basis points, again excluding levies. These changes are expected to lower costs for investors while improving disclosure and compliance efficiency in the market.
Investor protection
Standardized abridged prospectus for retail investors
To make public issues easier to understand for retail investors, SEBI has approved the introduction of a standardized, concise abridged prospectus at the draft offer document stage itself. This will give investors early access to key information instead of having to navigate lengthy prospectuses. The board also approved a new mechanism to ensure lock-in compliance for non-promoter shares even when they are pledged before an IPO.
Process simplification
Simplified post-listing processes and raises threshold for debt issuers
SEBI has approved changes to simplify post-listing processes. It will do away with requirement of issuing letters of confirmation for certain investor service requests, enabling direct credit of securities to demat accounts. The board also approved a special window for investors holding old physical share certificates bought before April 2019 to lodge transfer deeds. To ease compliance for debt issuers, SEBI raised the threshold for identifying High Value Debt Listed Entities from ₹1,000 crore to ₹5,000 crore of outstanding debt.