Quick answer: SEBI rewrote its mutual fund rulebook in 2026. The SEBI (Mutual Funds) Regulations, 2026 took effect on 1 April 2026. They replaced the old expense ratio with a lower-capped Base Expense Ratio (BER), shown separately from brokerage and taxes. A new categorisation framework added Life Cycle Funds, closed children’s and retirement (solution-oriented) funds to new money, raised the equity floor for several categories to 80%, and capped portfolio overlap for sectoral and thematic funds at 50%. For most SIP investors: costs are a bit lower and fund labels mean more. Very little needs action.
Last updated: [date]. Sources: SEBI board decision of 17 December 2025, SEBI (Mutual Funds) Regulations 2026, and SEBI’s 2026 categorisation circular.
The changes at a glance
| Change | What it means for you | When |
|---|---|---|
| TER replaced by Base Expense Ratio (BER), with brokerage and statutory levies shown separately | Clearer view of what you pay. Caps are lower. | 1 April 2026 |
| Lower expense caps (e.g. smaller equity funds 2.25% → 2.10%; index funds and ETFs 1.00% → 0.90%) | Slightly lower costs, especially in passive funds | 1 April 2026 |
| Brokerage caps cut (cash market 12 → 6 bps; derivatives 5 → 2 bps) | Less trading cost charged to the fund | 1 April 2026 |
| Extra 5 bps expense for exit-load schemes removed | Another small cost saving | 1 April 2026 |
| Solution-oriented schemes (children’s and retirement funds) closed to fresh investment | You can’t start new SIPs in them; existing units will be merged | From April 2026 |
| New Life Cycle Fund category (target dates 5–30 years) | A “set and forget” option that shifts from equity to debt as the date approaches | 2026 |
| Minimum equity raised to 80% in ELSS, focused, value, contra and dividend yield funds | These funds must stay truly equity-heavy | Alignment within about 6 months |
| Sectoral/thematic funds: max 50% overlap with the AMC’s other equity schemes | Fewer “me-too” thematic funds | 3 years for existing schemes |
| Fund names must match what the fund actually does | Fewer misleading names | Alignment within about 6 months |
1. Costs: from TER to BER
The old Total Expense Ratio bundled everything: fund management, distribution, brokerage and GST. From 1 April 2026, funds show a Base Expense Ratio with brokerage and statutory levies (like GST and STT) listed separately.
Why it matters to you:
- You’ll see more lines on the factsheet. Don’t panic if “brokerage” appears as a new item. It was always there, just hidden inside the TER.
- The caps are lower. Small equity funds, for example, can charge at most 2.10% BER (down from 2.25% TER), and index funds and ETFs at most 0.90%.
- Brokerage the fund can charge is roughly halved, which matters most in high-turnover funds.
The net effect is a modest cost cut. On a ₹10 lakh portfolio, even 0.1% is ₹1,000 a year that stays invested. Comparing direct and regular plans? Check the BER of both, as we explain in Direct vs Regular Mutual Funds.
2. Children’s and retirement funds are closing
This is the change most likely to affect a family’s plans. Solution-oriented schemes, the “children’s gift funds” and “retirement funds”, no longer accept new investments and will be merged into other schemes.
If you have SIPs in one: 1. Check the AMC’s notice for the date your SIP stops and which scheme the units will move to. 2. You’ll usually get an exit option without exit load when a merger happens. Read the notice before deciding. 3. Restart the SIP in a regular diversified fund (flexi cap, index or hybrid) tagged to the same goal. See our guide to investing for a minor.
3. Life Cycle Funds: a new option for long goals
Life Cycle Funds are target-date funds. You pick a fund that matures near your goal year (5 to 30 years out, in 5-year steps). The fund automatically moves from equity to debt as the date gets closer.
- Each AMC can run a limited number of them at a time.
- Exit loads are steep early on (3% in year 1, 2% in year 2, 1% in year 3) to discourage short-term money.
For someone who’d never rebalance on their own, they’re worth a look. We covered them in detail in Why Life Cycle Funds Are Replacing Traditional Retirement Plans.
4. Categories mean more now
Several rules push funds to match their label:
- 80% minimum equity in ELSS, focused, value, contra and dividend yield funds.
- Fund names must reflect the category and strategy. Expect a wave of renamed schemes in 2026.
- Sectoral and thematic funds may overlap no more than 50% with the AMC’s other equity schemes, with three years for existing funds to comply. That should cut down on “new theme, same stocks” launches.
- Equity funds can now hold a small slice of gold, silver, REITs and InvITs within limits set by SEBI.
What to do: nothing urgent. If your fund gets renamed or merged, the AMC will write to you. Use the chance to check you don’t own three funds holding the same stocks.
What should a SIP investor actually do?
If you… | Do this |
|---|---|
Have SIPs in diversified equity, index or hybrid funds | Nothing. Your costs may fall slightly. |
Have a SIP in a children’s or retirement fund | Read the AMC notice, then redirect the SIP to a diversified fund tagged to the same goal |
Own 2+ sectoral or thematic funds from one AMC | Watch for mergers over the next 3 years |
Get a “change in fundamental attributes” letter | Read it. You’ll usually have a free exit window. |
Want a hands-off long-term option | Consider a Life Cycle Fund near your goal year |
Frequently Asked Questions
What are SEBI’s new mutual fund rules in 2026?
The main ones are the SEBI (Mutual Funds) Regulations 2026 (effective 1 April 2026), which introduced the Base Expense Ratio with lower caps, and a new categorisation framework that added Life Cycle Funds, closed solution-oriented schemes and tightened equity and overlap rules.
Will my mutual fund expense ratio go down?
For many funds, slightly. The caps are lower and brokerage is capped tighter. Brokerage and taxes now appear as separate lines, so compare the total, not just the BER.
Can I still invest in children’s funds?
No new investments are accepted in solution-oriented schemes. Existing investments will be merged into other schemes as each AMC announces.
Do I need to stop my SIP because of the new rules?
No. For diversified equity, index and hybrid funds, SIPs continue as normal.
What is a Life Cycle Fund?
A target-date fund that starts equity-heavy and moves to debt as its maturity year approaches, so the rebalancing happens automatically.
Mutual fund investments are subject to market risks. Read all scheme-related documents carefully. RingMoney is an AMFI-registered mutual fund distributor (ARN-320453). This summary is for information only; refer to SEBI’s official circulars and your AMC’s notices for scheme-specific details.
Related reading: Regulatory Disclosure · Types of Mutual Funds in India
