Sebi Board Approves Changes to Mutual Fund Fees, Broker Rules, and IPO Documents

India's market regulator, Sebi, has greenlit a comprehensive set of reforms impacting both mutual funds and stock brokers. The changes aim to simplify rules, decrease investor costs, and ease compliance for market intermediaries. This marks one of the most extensive regulatory overhauls in recent years.

**Stock Broker Regulations Modernized**

The Sebi board approved replacing the three-decade-old stock broker regulations with a new framework that reflects current market practices. The Sebi (Stock Brokers) Regulations, 2025, will supersede the 1992 rules. The goal is to modernize market practices by eliminating outdated provisions and simplifying compliance.

The updated framework reorganizes broker regulations into 11 chapters, consolidating rules previously scattered across various circulars. It updates key definitions, such as proprietary trading and clearing members, and removes references to obsolete practices like physical share delivery. Sebi stated that the revised regulations reduce the rulebook's length by nearly half, which should improve clarity for brokers and investors.

**Mutual Fund Regulation Overhaul**

The board 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 intact, the revised rules use simpler language, consolidate provisions, and enhance transparency. A significant change involves overhauling the expense ratio framework.

Sebi has renamed expense ratios as the Base Expense Ratio. It clarified that statutory levies, including GST, stamp duty, and transaction taxes, will be charged separately based on actual costs. Simultaneously, base expense limits have been reduced across equity, debt, index funds, ETFs, and fund-of-funds as assets under management increase.

Under the new framework, the regulator 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% previously. Index funds and exchange-traded funds will see their BER reduced to 0.90% from 1.00%, while funds of funds investing in liquid index ETFs will also have a 0.90% cap.

Brokerage caps for cash and derivatives transactions have also been lowered, and certain temporary expense allowances have been eliminated. The board approved reducing the cap on cash market brokerage to 6 basis points, excluding statutory levies. In the derivatives segment, the brokerage cap has been further reduced to 2 basis points, also excluding levies.

Sebi anticipates that these changes will lower costs for investors while enhancing disclosure and compliance efficiency.

**IPO Document Simplification**

To make public issues easier for retail investors to understand, Sebi approved introducing a standardized, concise abridged prospectus at the draft offer document stage. This will give investors earlier access to key information, eliminating the need to navigate lengthy prospectuses. The board also approved a mechanism to ensure lock-in compliance for non-promoter shares, even when pledged before an IPO, by marking such shares as non-transferable during the lock-in period through depository systems.

**Other Key Decisions**

The regulator also approved allowing issuers of listed debt securities to offer incentives like additional interest or discounts to specific investor categories, including senior citizens, women, defense personnel, and retail investors. Sebi intends for this step to boost retail participation in the corporate bond market and encourage more public debt issuances.

Several changes were approved to streamline post-listing processes. Sebi will eliminate the requirement for issuing letters of confirmation for certain investor service requests, enabling direct credit of securities to demat accounts and reducing timelines from approximately 150 days to about 30 days.

The board also approved a special window for investors holding old physical share certificates purchased before April 2019 to lodge transfer deeds, subject to due diligence and exclusions for disputed cases.

To ease compliance for debt issuers, Sebi raised the threshold for identifying High Value Debt Listed Entities to ₹5,000 crore of outstanding debt from ₹1,000 crore previously. Corporate governance norms for such entities will also be more closely aligned with those for equity-listed companies, including changes related to board composition, related party transactions, and subsidiary disclosures.

The board further approved amendments allowing credit rating agencies to rate financial instruments regulated by other financial sector regulators, even without explicit guidelines, provided safeguards such as clear disclosures and segregation of regulatory responsibilities are in place. This is expected to broaden the availability of ratings in the debt market.

Finally, the board acknowledged the report from a high-level committee regarding conflict of interest and disclosure norms for Sebi's members and officials. While recognizing the committee’s work, the board stated that the recommendations will be discussed in detail at a later meeting, considering feedback from stakeholders and employees.