From BER to MF-Lite: Know Key Sebi Rule Changes Which Impacted Mutual Fund Investors in 2025

The year 2025 has been a momentous one for the Indian securities market. In 2025, participation in mutual funds grew despite the overall market facing several headwinds in the form of trade tariff-related uncertainties and geopolitical tensions.

Notably, the assets under management of the mutual fund industry have grown to Rs 80,80,370 crore, and the total number of folios grew to 258.6 million as of November 2025.

As the current year draws to a close, the Indian mutual fund industry has been significantly transformed by several initiatives taken by the Securities and Exchange Board of India (SEBI) to bolster greater participation in mutual funds.

Additionally, the market regulator has also introduced several measures to enhance transparency and cost efficiency for investors. Here’s a look at some of the key mutual fund regulations introduced by the market regulator in 2025, which have sought to positively impact the way investors invest in mutual funds:

BER Overhaul

On December 17, the capital market regulator amended the Mutual Fund Regulations 1996 and changed the Total Expense Ratio (TER) framework. As a part of the change, investors will not see the TER as an opaque percentage but rather get a clearer breakdown of what they are actually paying for. Prior to the change, the TER reflected costs such as management fees bundled with government taxes.

Following the overhauling of the TER structure, the charges will now be shown in four distinct buckets, which include the Base Expense Ratio (BER), brokerage, regulatory charges and statutory levies like Goods and Services Tax (GST), stamp duty and Securities Transaction Tax (STT). While the change itself is not a guarantee of a reduction in the money investors need to pay for their mutual fund investments, it can potentially increase transparency and allow investors to compare and choose schemes easily, helping them make more informed investment decisions.

Apart from this change, the market regulator also decreased the BER caps across different types of schemes, changing the maximum percentage that asset management companies can charge investors across different scheme categories.

Relatively More Affordable Access to Passive Funds

The capital market regulator recognised a massive surge in passive investing and launched the MF-lite framework. The framework was launched on March 16 and sought to reduce the compliance burden for AMCs that only offer passive schemes such as index funds and exchange-traded funds (ETFs).

While this does not have a direct impact on investors, the lower compliance burden can decrease compliance costs for fund houses, which can then result in lesser tracking errors and potentially lower expense ratios for retail investors. The framework can also potentially make it easier for new tech-first players to enter the market with low-cost products, offering more investment options to investors.

Revised Cut-Off Timings For Liquid Funds

Liquid Funds and Overnight Funds are types of debt-based mutual funds which enable investors to park their funds for a short period of time and allow investors to have an alternative to savings accounts. Earlier, on June 1, the market regulator modified the transaction timings for funds in the category. Notably, the new rules allowed investors to redeem their overnight funds online till 7:00 PM as opposed to 3:00 PM as per the prior rules. The change seeks to enable investors to manage their liquidity more effectively after the main market hours.

Lower Exit Loads

An exit load is a fee or penalty charged by AMCs to investors upon the redemption of their mutual fund units before a predetermined period. Earlier in September 2025, Sebi addressed this cost and capped the maximum permissible exit load at 3 per cent compared to the previous rate of 5 per cent.

The move seeks to protect investors in thematic funds where high exit loads are charged to help fund managers maintain a stable pool of money. However, this sometimes leads to high redemption costs for investors and eats into their returns. The change ensures that investors’ liquidity is not unfairly penalised.

Insider Trading Norms for Mutual Funds

In 2025, the scope of Sebi’s Insider Trading Regulations was expanded to include mutual funds, ensuring greater transparency and accountability. As a part of the reforms, high-ranking AMC officials (Designated Persons) have been legally barred from trading in their own fund's units if they possess non-public information about the portfolio (e.g., a looming default in a debt holding).

The change is expected to significantly boost "skin in the game" and bolster trust between AMCs and investors.

Asset Allocation Rule For Equity

The capital market regulator amended the asset allocation rules for equity funds. As a part of the reforms, Sebi mandated equity-oriented schemes to maintain a minimum of 75 per cent of their holdings in equity, up from the previous 65 per cent minimum requirement. The change seeks to help investors by ensuring that the schemes they invest in actually allow them the exposure towards a specific asset promised in the scheme document.

REIT Reclassification

On November 28, 2025, Sebi announced the reclassification of Real Estate Investment Trusts (REITs) into equity instruments for mutual fund investment. Prior to the change, REITs were considered hybrid or debt-proxy instruments. Notably, the reclassification will come into effect on January 1, 2026. However, Infrastructure Investment Trusts (InvITs) will continue to be classified as "Hybrid" instruments.

After January 1, investors can expect their diversified equity funds to gradually increase exposure to commercial real estate as fund managers will have greater freedom in their equity allocation limits to buy REITs.

As we move towards the new year, mutual fund investors can make more informed investment decisions by keeping these regulatory changes in mind. These changes also reaffirm Sebi’s commitment to increasing participation in mutual funds in India and increasing transparency and trust between stakeholders in the mutual fund industry.