SEBI’s 2025 Mutual Fund Reforms: Lower Costs, Safer Investments, Bigger Opportunities

Mutual Funds (MFs) become more attractive options for investors in the New Year with the recent rule changes by SEBI (Securities and Exchange Board of India). The move makes mutual fund investments more cost-effective and improves investor protection. The SEBI reforms came in the wake of rising investments in the MFs, with net inflows surging 135% year-on-year and Assets Under Management (AUM) rising nearly 39% as of November 2025. While some of the reforms have been implemented, others are still under consideration.

Already Implemented Changes

Exit Load Reduced

SEBI has lowered the maximum exit load from 5 per cent to 3 per cent? With this, investors now face smaller penalties when withdrawing early. Since most schemes already charged 1-2 per cent, this cap ensures no scheme can go beyond 3 per cent. Implemented in September 2025, the move makes mutual funds more flexible and less costly for small investors who may need quick access to their money.

MF-Lite Regime for Passive Funds

SEBI introduced the "MF-Lite" framework on March 16, 2025, to mitigate compliance requirements for passive funds such as index funds, ETFs, and passive fund-of-funds. The move encourages fund houses to start more low-cost passive products. Investors benefit from simpler, cheaper options that track market indices without high management fees.

New Cut-Off Timings for Liquid and Overnight Funds

From June 1, 2025, SEBI changed the rules about when an investor can take money out of liquid and overnight mutual funds. Liquid funds are schemes where people keep money safely for a short time and still earn a small return, while overnight funds invest in securities that last only one day.

When an investor withdraws money, the amount he/she gets depends on the Net Asset Value (NAV). NAV is just the daily price of one unit of the fund, based on the value of what the fund owns.

SEBI has now fixed clear timings to decide which NAV applies:

If an investor requests for a withdrawal before 3 pm, he/she will get the NAV of the day before the next working day. If the request is made after 3 pm, the NAV will be available according to the working day. For online requests in overnight funds, the cut-off time is extended to 7 pm, giving more time to investors.

The new timings make the process clearer and fairer. The investors can know exactly which NAV will apply depending on the time they submit the requests. Extending the cut-off time also makes online transactions smoother and investor-friendly since the investor doesn't have to rush before 3 pm.

Rules for Passive Breaches

SEBI's move to set timelines for rebalancing portfolios when funds unintentionally breach asset allocation limits due to market events reduces the risk of investors' money being exposed to unintended market positions for too long and makes funds safer.

Safer Deposits for Advisers and Analysts

Investment Advisers (IAs) and Research Analysts (RAs) can now keep mandatory deposits in liquid or overnight funds instead of banks. While this does not directly affect individual investors, it strengthens the system by ensuring advisers' deposits remain secure in safe, low-risk funds.

Upcoming Changes

There are some proposed changes too, including Expense Ratio (TER) cuts, broking cost cuts and transparency of taxes and charges, removal of extra charges, avoiding double billing for research, performance-linked fees and reclassifying REITs as equity investments, etc., which may be implemented in 2026.

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