Biggest mutual fund rule changes of 2025: 6 key points for MF investors

To improve investor protection, increase transparency, and lower the cost of mutual fund investments, the Securities and Exchange Board of India (SEBI) proposed a number of regulatory changes in 2025. While some of these modifications are suggestions presently for comment, others have already been finalised through circulars.

A look at the biggest mutual fund rule changes of 2025

1. New "MF-Lite" regime for passive funds

2. Cut off timings

a. Where the application is received up to 3.00 pm – the closing NAV of the day immediately preceding the next business day; and

b. Where the application is received after 3.00 pm – the closing NAV of the next business day.

Provided that in case an application is received through online mode, the cut-off time of 7 PM shall be applicable for overnight fund schemes.

“Business Day” does not include a day on which the Money Markets are closed or otherwise not accessible.

This was effective June 1, 2025.

3. Rules for passive breaches

Mutual funds sometimes breach their prescribed asset allocation limits not because of mistakes by the fund manager, but due to market events, like a sudden price change, corporate actions, or large redemptions.

4. Reduced exit load cap

SEBI lowered the maximum permissible exit load from 5% to 3%. The decision was taken in a September SEBI board meeting chaired by Chairman Tuhin Kanta Pandey. The market regulator noted that most schemes currently charge between 1% and 2% as exit load.

5. Use of liquid / overnight funds for IA & RA deposits

6. Reclassification of REITs for MF Investments

SEBI has decided that from January 1, 2026, investments by mutual funds (and specialised investment funds) in Real Estate Investment Trusts (REITs) will be treated as equity-related instruments.

Existing REIT holdings by debt-scheme MFs as of December 31, 2025 will be “grandfathered” (i.e. not reclassified), but going forward, debt schemes may have to adjust portfolios if they hold REITs.

SEBI (Mutual Funds) Regulations, 2026

Sebi has introduced a new Base Expense Ratio, which excludes taxes and statutory levies like GST and STT. This gives investors a clearer picture of what fund houses actually charge.

TER will now be the sum of BER plus brokerage plus regulatory levies plus statutory levies, making expense disclosures more transparent.

The brokerage cap has been reduced to 0.06% from 0.12%, which can help lower overall fund costs.

For derivative transactions, the brokerage cap has been cut to 0.02% from 0.05%, reducing trading costs borne by schemes.

Sebi has withdrawn the extra 0.05% exit load that was introduced in 2018, benefiting investors who exit funds.

All changes will come into effect from April 1 next year, giving investors and AMCs time to adjust.

In order to make investing in mutual funds more affordable, secure, and transparent for investors, SEBI implemented a number of significant improvements in 2025. When taken as a whole, these changes increase investor confidence in India's capital markets by making mutual fund investing more affordable, equitable, and investor-friendly.