The Securities and Exchange Board of India (SEBI) has introduced significant mutual fund regulatory changes in 2025 to enhance transparency, security, and fund management efficiency. These reforms aim to strengthen investor protection while ensuring that Asset Management Companies (AMCs) adhere to stricter compliance measures.
With stricter fund deployment deadlines, risk control mechanisms, and the introduction of new asset classes, investors and fund houses must adapt to these updates to navigate the evolving financial landscape.
Key Updates in SEBI’s Mutual Fund Regulations
| Aspect | Details |
|---|---|
| New Fund Deployment Rule | AMCs must deploy NFO funds within 30 days of allocation. |
| Revised Nomination Process | Investors can nominate up to 10 beneficiaries. |
| New Asset Class Introduced | Long-short equity funds added for high-risk investors. |
| Eased Rules for Passive Funds | Simplified compliance for large index-based funds. |
| Stronger Risk Management Framework | AMCs must enhance liquidity and stress testing. |
| Transparency in Expense Ratios | Clearer disclosure of fund management fees. |
| Implementation Timeline | Changes come into effect between March and April 2025. |
With these new rules, SEBI is ensuring that mutual fund investments remain secure, well-regulated, and aligned with global financial standards.
What These Changes Mean for Investors and Fund Managers
Mutual fund investors and AMCs must understand and adapt to these regulatory shifts. Here’s how these rules impact various stakeholders:
1. Shorter Deployment Timeline for New Fund Offers (NFOs)
What’s Changing?
- AMCs previously had 60 days to deploy funds raised through NFOs.
- Now, they must invest within 30 days of unit allocation.
- Extensions beyond 30 days require approval from the investment committee.
Impact on Investors:
- Reduces idle capital sitting in fund accounts.
- Ensures faster deployment of investments.
- Creates greater fund efficiency and improved returns for investors.
2. Enhanced Nomination Flexibility for Investors
New Rules:
- Investors can now nominate up to 10 beneficiaries.
- Power of Attorney holders can no longer nominate on behalf of investors.
- Fund assets will be transferred smoothly to nominees upon submission of valid documents.
Why It Matters?
- Improves estate planning and simplifies wealth transfer.
- Provides investors with greater control over fund allocations.
- Reduces inheritance disputes in mutual fund asset transfers.
3. Introduction of a New Asset Class for High-Risk Investors
What’s New?
- SEBI has approved long-short equity funds, offering hedging strategies for risk-tolerant investors.
- This asset class is designed to balance market volatility with flexible investment approaches.
Eligibility Criteria:
- Minimum investment: ₹1 million.
- Only available for high-net-worth individuals (HNIs) and institutional investors.
Potential Benefits:
- Enables more sophisticated investment strategies.
- Enhances portfolio diversification for high-risk investors.
4. Eased Compliance for Passive Investment Funds
Regulatory Adjustments:
- Index-based passive funds tracking domestic markets must have at least ₹50 billion in assets under management (AUM).
- Passive funds tracking international indices must have a minimum of $20 billion AUM.
Why It Matters?
- Encourages growth of Exchange-Traded Funds (ETFs) and index funds.
- Offers investors low-cost passive investment options.
- Supports the rise of global portfolio diversification.
5. Strengthened Risk Management Framework (RMF)
New Risk Controls for AMCs:
- SEBI mandates dedicated risk officers in AMCs.
- Funds must monitor liquidity, credit, and market risks through stress testing.
- Regular risk audits will be conducted to prevent financial mismanagement.
Investor Benefits:
- Enhances protection against market downturns.
- Ensures funds maintain adequate liquidity reserves.
- Reduces the likelihood of sudden redemption crises.
6. Higher Transparency in Fund Expenses
SEBI’s New Expense Ratio Rules:
- AMCs must now break down and disclose all charges applied to mutual funds.
- Fund managers must provide a detailed fee structure to investors.
Why This is Important:
- Prevents hidden costs in mutual funds.
- Helps investors compare expense ratios across different funds.
- Ensures fund management fees remain reasonable and justified.
How Investors Should Prepare for These Changes
For Beginners
- These changes make mutual fund investing more structured and transparent.
- The new nomination process ensures smoother wealth transfers.
- Passive funds will be more accessible and better regulated.
For Experienced Investors
- The shorter NFO deployment period means quicker investment returns.
- New asset classes allow diversification into long-short equity strategies.
- Stricter risk controls mean better financial security for investments.
For Fund Managers & AMCs
- Compliance requirements have tightened, requiring efficient fund deployment.
- Fund expenses must now be clearly disclosed to investors.
- Risk monitoring frameworks need enhanced governance policies.
FAQs
What is the key change in SEBI’s mutual fund regulations?
SEBI has reduced the deployment period for NFOs from 60 days to 30 days, ensuring faster fund allocation.
Who benefits the most from the new SEBI rules?
Both investors and fund managers benefit, as the rules increase transparency, security, and fund efficiency.
How does the nomination update help investors?
Investors can nominate up to 10 beneficiaries, simplifying the wealth transfer process.
What are long-short equity funds, and who can invest?
These funds allow hedging strategies for high-risk investors, with a minimum investment of ₹1 million.
How will passive funds be affected?
Passive funds tracking domestic indices need at least ₹50 billion AUM, while international ones require $20 billion AUM.
Will these changes increase mutual fund costs?
No, in fact, the expense transparency rule will help reduce hidden costs for investors.
How can investors adapt to these changes?
- Stay updated with SEBI’s announcements.
- Check expense ratio disclosures before investing.
- Consider diversifying portfolios with new asset classes.
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Aanchal is a passionate writer with a keen interest in storytelling, content creation, and creative expression. She enjoys exploring diverse topics and crafting engaging narratives that captivate readers.
