How SEBI’s new mutual fund rules could impact your portfolio

Certified Financial Planner Shweta Shashtri said the changes represent one of the most significant structural shifts since 2017 and are designed to make investing simpler rather than more complex.

Expense structure becomes more transparent

One of the most notable changes is in how mutual fund expenses are disclosed. Earlier, investors were shown a single expense ratio that bundled fund management fees, transaction charges, brokerage costs, and taxes into one figure.

Under the revised framework, these components will now be separated. The Base Expense Ratio (BER) will reflect only the actual fund management fee charged by the AMC, while taxes and other transaction-related costs will be shown independently.

According to Shashtri, this will allow investors to make more accurate like-for-like comparisons between schemes. Starting April 2026, fund factsheets will display this breakup clearly, making cost evaluation more transparent.

Stricter rules on fund overlap and differentiation

SEBI has also tightened norms around portfolio overlap within similar schemes offered by the same AMC. Funds with similar mandates will now need to maintain meaningful differentiation in their portfolios.

This aims to reduce situations where investors unknowingly hold multiple funds with largely identical underlying exposure. AMCs will also be required to disclose portfolio overlap data more frequently, helping investors assess real diversification.

Transition from solution-oriented funds to Life Cycle funds

Traditional retirement and children-focused schemes are being replaced with Life Cycle Funds, which automatically adjust asset allocation based on a target year.

These funds remain equity-heavy in the early years and gradually shift towards debt as the goal approaches, reducing the need for investors to manually manage risk transitions.

Greater flexibility in equity portfolios

Equity mutual funds will now be allowed to allocate a small portion of their portfolios to instruments such as gold, silver, REITs, and InvITs during volatile phases. This is intended as a risk management tool for fund managers, not a substitute for dedicated asset allocation products.

Faster grievance resolution

Investor complaints will now need to be resolved within 21 days, bringing a fixed timeline to grievance redressal. Delays beyond this can be escalated through regulatory channels.

How these rules could actually impact your portfolio

According to Shashtri, the real impact for investors will be visible at the portfolio level rather than in headlines.

Holding 8–12 funds does not automatically mean diversification, she said. With stricter overlap rules, many AMCs may merge or restructure schemes. Investors are likely to receive merger notices and should review whether the new structure still aligns with their goals.

These schemes are being phased out and merged into comparable structures, likely Life Cycle Funds. Shashtri advised investors to check the new asset allocation and ensure it still matches their original financial goal, especially if they are close to their target horizon.

Overlapping holdings across funds will now come under stricter scrutiny. If two funds from the same AMC are heavily similar, adjustments may be made over time. While NAV impact will not be immediate, the portfolio composition may gradually evolve, making monthly disclosures important to track.

There is no need for concern, Shashtri said. SIP investments will continue uninterrupted, and disciplined long-term portfolios are unlikely to be affected. The changes primarily aim to reduce clutter and improve clarity, not disrupt investment discipline.

The biggest long-term gain will be lower and more transparent costs. Even a small reduction in expense ratios can significantly improve long-term compounding. The new BER framework will make cost comparisons easier, which may encourage greater competition among fund houses.

Although there may be certain portfolio modifications like mergers or restructuring, the main goals of the reforms are to increase investor awareness, decrease duplication, and improve transparency.

Disclaimer: This article is written purely for informational purposes and should not be considered investment advice from Upstox. Investors should do their own research or consult a registered financial advisor before making investment decisions.