A. Background:

The Securities and Exchange Board of India (“SEBI”) had issued a consultation paper dated October 28, 2025 (“Consultation Paper”) re a comprehensive review of the extant SEBI (Mutual Funds) Regulations, 1996 (“Extant Regs”) to inter alia (a) simplify regulatory language; (b) remove redundant provisions and ambiguities; (c) enhance ease of understanding; and (d) align regulations with the evolving market.

Following public consultation, SEBI has introduced the SEBI (Mutual Funds) Regulations, 2026 (“New Regs”) which will become effective from April 1, 2026 superseding the Extant Regs.

B. Broad Overview of Changes:

1. For Simplicity and Clarity: The New Regs have simplified and clarified the provisions of the Extant Regs via inter alia: (a) introducing a clear tabulation of the sponsor eligibility criteria under both available routes; (b) rearranging and collating the roles and responsibilities of asset management companies (“AMCs”) and trustees under thematic headings; and (c) clarifying definitions which were previously undefined.
2. To Ease Compliance: The New Regs have eased the compliance onus of mutual funds (“MFs”), AMCs and Trustees by inter alia: (a) reducing the minimum number of Trustee meetings required annually; and (b) substituting the requirement of a newspaper-advertisement with a publication on AMC’s website for change in control/ change in fundamental attributes of the MF schemes.
3. For Transparency and Investor Protection: The New Regs have also revised the expense framework viz. – (a) removing the ability for charging additional expense of 5 bps for schemes where exit load is applicable/ levied; (b) exclusion of all statutory levies from expense ratio limits; and (c) prescribing revised limits for base-expense-ratio (“BER”) (i.e., total-expense-ration less brokerage, exchange/ regulatory fee and statutory levies). The New Regs also introduce the ability for AMCs to charge BER basis the performance of the scheme albeit detailed instructions in this behalf are currently awaited.
4. Sponsor Eligibility:

• Experience: The New Regs now require MFs set up by sponsors meeting the financial track record requirements to appoint a Chief Executive Officer, Chief Operating Officer, Chief Risk Officer, Chief Compliance Officer and Chief Investment Officer in the AMC, each with minimum 3 years’ ‘relevant experience’. Where sponsors do not meet the existing track record requirements, in addition to the extant requirement re the cumulative experience being at least 30 years re the abovementioned designations, the New Regs also require (i) the said experience to be ‘in the relevant field’, and (ii) each of the above to individually have at least 3-years’ ‘relevant experience’.
• PE Fund as Sponsor: Whilst the flexibility for a private-equity fund to sponsor a MF was already introduced under the Extant Regs vide a proviso, the New Regs expressly codify the same as part of the tabulation on sponsor eligibility and also provide a definition of ‘associates’ that is tailored to such sponsors.

5. Independent Directors: Extant Regs required independent directors (“IDs”) on the board(s) of AMC and Trustee to inter alia not be ‘associated in any manner’ with the sponsor. The lack of interpretational guidance on the precise scope of the phrase above inspired many varying views and practices spanning the industry. The New Regs have clarified that the test for IDs is only to not be an ‘associate’ of the sponsor.

6. AMC’s Vicarious Liability: Per the Extant Regs, the AMC was vicariously liable for acts of commission or omission by its employees/ persons whose services AMC had procured without any further guidance on the conditions under which AMC’s liability would arise. New Regs have sought to tighten the above position by clarifying that the above applies “where such act or omission is committed in the course of carrying out functions under these regulations, and involves negligence, breach of duty, or failure to comply with applicable law”.

SEBI is yet to issue the revised master circular with detailed provisions re inter alia valuation guidelines and prudential limits. Whilst the New Regs kick-in from April 1, 2026, a key issue that might occur is that the existing Master Circular on Mutual Funds still refers to provisions of the Extant Regs. Thus, a revised version of the same would help in avoiding any interpretational issues.