The SEBI (Mutual Funds) Regulations, 2026 replaced the 1996 rules from 1 April 2026. The fund house's fee is now shown as a Base Expense Ratio (BER), with brokerage and taxes listed separately, and brokerage caps are lower. A separate February 2026 circular closed retirement and children's "solution" funds, created Life Cycle Funds and capped overlap between thematic funds at 50%. Your existing SIPs continue without any action.
Key Takeaways
- Expense ratios are now split into the AMC's fee (BER) plus brokerage and statutory levies, so you can see what you actually pay for.
- Expense caps were reset (index funds and ETFs: 0.90% BER) and brokerage caps cut to 6 bps for cash trades and 2 bps for derivatives.
- Retirement and children's solution funds take no new money and will be merged into similar schemes; Life Cycle Funds take their place.
- Thematic and sectoral funds must keep portfolio overlap with the AMC's other equity schemes at or below 50%, phased in over three years.
- None of this needs you to redeem or restart SIPs; review your funds as usual.
What changed in SEBI's mutual fund rules in 2026?
Two separate SEBI actions reshaped mutual funds this year. The first is a new rulebook: the SEBI board approved the SEBI (Mutual Funds) Regulations, 2026 on 17 December 2025, they were notified in January 2026 and came into force on 1 April 2026, replacing the regulations in place since 1996. Existing schemes and registrations carried over. The second is a circular dated 26 February 2026 that rewrote how schemes are categorised. A third change, from 2025, created a new product for larger investors. Here is the summary:
| Rule | What changed | Effective | What it means for you |
|---|---|---|---|
| Base Expense Ratio | AMC fee shown as BER; brokerage and levies charged on actuals and shown separately | 1 Apr 2026 | Clearer view of the fee you pay for management |
| Expense ratio caps | Caps reset to exclude statutory levies, e.g. index funds and ETFs 1.00% to 0.90% | 1 Apr 2026 | Slightly lower ceilings; compare BER across similar funds |
| Brokerage caps | Cash market 12 bps to 6 bps; derivatives 5 bps to 2 bps (new caps exclude levies) | 1 Apr 2026 | Less of your money spent on trading costs |
| Exit-load expense | The extra 5 bps that schemes with exit loads could charge removed | 1 Apr 2026 | A small direct saving in many equity funds |
| Performance-linked fee | Schemes may opt for a BER that moves with performance, under SEBI conditions | Optional, scheme by scheme | Read the scheme document if your fund adopts it |
| Solution-oriented funds | Retirement and children's funds closed to new money; to be merged | 26 Feb 2026 | Existing holdings move to a similar scheme; no new SIPs |
| Life Cycle Funds | New category with a 5–30-year target date and an automatic glide path | 26 Feb 2026 | A cleaner option for dated goals such as retirement |
| Thematic overlap cap | Overlap with the AMC's other equity schemes capped at 50% | Over 3 years from Feb 2026 | Thematic funds must actually differ from core funds |
| Specialised Investment Funds | New product between mutual funds and PMS, ₹10 lakh minimum | 1 Apr 2025 | Only relevant above ₹10 lakh; higher risk strategies |
What is the Base Expense Ratio (BER)?
Until March 2026 every scheme showed one number, the Total Expense Ratio (TER). It bundled the AMC's management fee with brokerage, GST and other levies, which made it hard to see what the fund house itself was charging.
Under the 2026 Regulations the AMC's fee is shown as the Base Expense Ratio. Brokerage, and statutory and regulatory levies such as GST, securities transaction tax, stamp duty, exchange and SEBI fees, are charged on actual cost and disclosed separately. The total is still reported:
Total expense ratio = BER + brokerage + regulatory levies + statutory levies
Because the new caps exclude levies, a fund's BER is not directly comparable with its old TER. Compare like with like: the BER of one large-cap fund against the BER of another, or the full TER against the full TER. Your returns are still reported after all expenses, as before.
Did expense ratio caps come down?
Yes, modestly. The caps were reset to exclude statutory levies and, for several categories, reduced:
| Scheme type | Old cap (including levies) | New BER cap (excluding levies) |
|---|---|---|
| Index funds and ETFs | 1.00% | 0.90% |
| Fund of funds investing over 65% in equity schemes | 2.25% | 2.10% |
| Other fund of funds | 2.00% | 1.85% |
| Close-ended equity schemes | 1.25% | 1.00% |
| Close-ended non-equity schemes | 1.00% | 0.80% |
Open-ended active schemes keep an AUM-based slab structure, where larger schemes must charge less. Separately, the cap on brokerage a scheme can pay fell from 12 to 6 basis points on cash-market trades and from 5 to 2 basis points on derivatives, and the additional 5 basis points that schemes with an exit load could charge was removed. The caps are ceilings; many funds, especially direct plans and index funds, charge well below them.
Can mutual funds now charge performance-linked fees?
The 2026 Regulations allow a scheme to adopt a performance-linked BER, where the fee rises when the fund beats its benchmark and falls when it lags, within SEBI's limits. It is optional, and SEBI sets the conditions on benchmarks, look-back periods and disclosure. If one of your funds moves to this structure, the AMC must tell you, and the scheme document will explain how the fee is calculated. Do not assume a higher fee means better future returns.
What happened to retirement and children's funds?
SEBI's categorisation circular of 26 February 2026 discontinued the "solution-oriented" category, which held retirement and children's funds with a five-year lock-in. These schemes stopped taking fresh subscriptions and are to be merged into comparable schemes after SEBI approval. If you hold one, your units are not lost: they move to the merged scheme, and the AMC must inform you before the merger, usually with an option to exit without an exit load.
In their place, SEBI created Life Cycle Funds. Each has a target year between 5 and 30 years away, shown in the scheme's name, and follows a glide path that reduces equity and moves towards debt and other lower-risk assets as the target year approaches. They suit a goal with a fixed date, such as retirement or a child's education. For most people, a simple equity SIP with a planned shift to debt near the goal does the same job.
What are the new rules for thematic and sectoral funds?
Many thematic funds held largely the same stocks as the AMC's flexi-cap or large-cap funds, so investors paid for a theme they were not really getting. The February 2026 circular caps a sectoral or thematic scheme's portfolio overlap with the AMC's other equity schemes, except large-cap funds, at 50%. Overlap is measured quarterly. Existing schemes get three years to comply, cutting the excess by 35%, 35% and 30% in successive years; schemes that still fail must be merged.
The same circular lets an AMC run both a value fund and a contra fund, with overlap between them also capped at 50%, and allows a scheme's residual portion to be invested in gold, silver and InvITs within set limits. Check your fund's latest scheme document for its own limits.
What is a Specialised Investment Fund (SIF)?
From 1 April 2025, SEBI allowed established fund houses to launch Specialised Investment Funds, a regulated product between a mutual fund and a portfolio management service. SIFs can use strategies a normal mutual fund cannot, such as limited short positions through derivatives. The minimum investment is ₹10 lakh across all SIF strategies, counted at PAN level, and only AMCs with a three-year track record and an average AUM of at least ₹10,000 crore can launch one. They are meant for experienced investors with larger portfolios, not as a substitute for a core SIP.
What should you do now?
- Keep your SIPs running; none of these changes require a switch
- Compare BERs only within the same category, and prefer direct plans if you invest without advice
- If you hold a retirement or children's fund, watch for the AMC's merger letter and review the destination scheme
- Check whether a thematic fund you own adds anything your core funds do not
- Do not switch funds just for a small fee difference; exit loads and capital gains tax can cost more
To see how cost affects long-term returns, try our SIP calculator, and read how mutual fund gains are taxed in 2026 before switching anything.
Frequently Asked Questions
When did the SEBI (Mutual Funds) Regulations, 2026 come into effect?
On 1 April 2026. The SEBI board approved them on 17 December 2025, and they replaced the SEBI (Mutual Funds) Regulations, 1996.
What is the difference between BER and TER?
BER is the fee the AMC charges for managing the scheme. TER is the total cost: BER plus brokerage and statutory and regulatory levies such as GST and STT, which are now charged on actuals and shown separately.
Will the new SEBI rules reduce my mutual fund costs?
Slightly, for many investors. Expense caps were reset lower for several categories, brokerage caps were cut and the extra exit-load charge was removed. The actual saving depends on how much below the cap your fund already charged.
Do I need to stop my SIP because of the new rules?
No. Existing schemes continue under the new regulations, and SIPs run as before. Only solution-oriented funds stopped accepting fresh money.
What happens to my retirement or children's mutual fund?
These schemes no longer take new investments and will be merged into a comparable scheme after SEBI approval. Your units move to that scheme, and the AMC must inform you before the merger.
What is a Life Cycle Fund?
A target-date mutual fund with a maturity year 5 to 30 years away. It gradually reduces equity and increases lower-risk assets as the target year approaches.
Want to review your mutual fund portfolio under the 2026 rules?
Hatlet Ventures helps salaried professionals and families across Tamil Nadu (Tiruppur, Coimbatore, Chennai, Erode, Salem) check their schemes' costs, overlap and categories after the 2026 changes.
Get a Free Mutual Fund Consultation
Not sure how the new rules affect the funds you hold? Connect with Sri Balaji for a free 30-minute portfolio review.
Disclaimer: This article is for education only and is not investment, tax or legal advice. Figures and rules are stated as understood on the date shown and can change. Return figures are illustrative or historical, not guaranteed; past performance does not guarantee future results. Mutual fund investments are subject to market risks; read all scheme-related documents carefully. Insurance is the subject matter of solicitation. Hatlet Ventures is an AMFI-registered mutual fund distributor (ARN-345155), not a SEBI-registered investment adviser.
Sri Balaji is the founder of Hatlet Ventures in Tiruppur, Tamil Nadu. He is a NISM Certified Research Analyst, AMFI Registered Mutual Fund Distributor (ARN-345155), IRDAI Registered Insurance Agent (1911251001) and APMI Registered PMS Distributor (APRN09158). With 8+ years of experience, he has guided 500+ families across Tamil Nadu in SIP, mutual funds, insurance planning, and portfolio management. All content on this blog is reviewed for accuracy and updated regularly.