SEBI announces major overhaul of mutual fund regulations, cuts expense ratio limits

“Total Expense Ratio shall now be the sum of BER, brokerage, regulatory levies and statutory levies,” the statement said.

In the open-ended schemes, the base expense ratio limits for equity-oriented schemes and other than equity oriented schemes under various asset under management (AUM) slabs have been cut by up to 15 basis points. For index funds or exchange traded funds (ETF), the base expense ratio limit has been revised to 0.9 per cent from 1 per cent earlier. In close-ended schemes, the BER limit for equity-oriented schemes now stands at 1 per cent as against 1.25 per cent. The regulator halved the maximum brokerage fee that mutual funds pay on cash market transactions to 6 bps from 12 bps. For derivative transactions, the cap has been revised downwards to 2 bps as against 5 bps, excluding applicable levies.

SEBI also removed the additional 5 bps expense allowance currently permitted to be charged to schemes with exit loads as a transitory measure.

The revised framework will strengthen investor protection, transparency, and governance standards within the mutual fund ecosystem.

The board also approved the Issue of Capital and Disclosure Requirements (ICDR) regulations to streamline requirements relating to public issues. Currently, the entire pre-issue capital held by persons other than the promoters, is required to be locked-in for a period of six months from the date of allotment in the IPO. Due to this, certain issuers face challenges in complying with such lock-in requirements, particularly in cases where pledges have been created by non-promoters prior to the IPO.

“The Board has approved an amendment to ICDR to prescribe that in case lock-in of the specified securities cannot be created, the depositories shall record such securities as “non-transferable” for the duration of the applicable lock-in period,” the regulator said. The new procedure will ensure compliance with the requirement of lock-in of certain shares even when they are pledged.

In order to increase the engagement and participation of the retail investors in the IPO process, SEBI Board has approved that a focused, concise and standardized summary of offer documents in the form of draft abridged prospectus will be available at the DRHP (Draft Red Herring Prospectus) stage as well, in addition to the current requirement of filing of abridged prospectus at the RHP stage.

The board has also approved the proposal to rationalise the disclosures in the abridged prospectus.

To enhance participation of retail investors in the corporate debt market and also to encourage public issuances in the debt market, the board also permitted debt issuers to offer incentives to certain categories of investors.

The board also revamped stock broker regulations.