In a landmark meeting held on December 17, 2025, the Securities and Exchange Board of India (SEBI) board approved a series of sweeping regulatory overhauls impacting mutual funds and stockbrokers. These changes, aimed at modernizing market practices, enhancing transparency, and improving investor protection, mark a significant shift in the Indian capital market landscape.

Mutual Fund Reforms

The SEBI board approved a revamp of the mutual fund fee structure, addressing concerns regarding transparency and cost efficiency. Key changes include:

• Revision of Base Expense Ratio (BER): The board revised mutual fund expense ratios, excluding statutory levies such as the Securities Transaction Tax (STT), Goods and Services Tax (GST), and stamp duty from the base expense ratio. This move aims to provide investors with a clearer picture of the actual costs associated with managing their investments.
• Lowered BER for Index Funds and ETFs: The BER for index funds and Exchange Traded Funds (ETFs) has been reduced from 1% to 0.9%.
• Removal of Additional Expense Levy: SEBI plans to remove the additional 5 basis points (bps) that asset management companies (AMCs) were previously allowed to levy across mutual fund schemes. This additional expense was initially introduced to offset the impact of crediting exit loads back to schemes.
• Performance-Based Fees: SEBI has approved the introduction of performance-linked fees, allowing some mutual funds to charge extra only when they outperform their benchmarks. This model, which is optional and must be clearly disclosed, aims to align the interests of fund managers and investors.
• Increased Transparency: The new rules mandate clear listing and separation of all costs, including GST, stamp duty, and other fees, within the Total Expense Ratio (TER).
• Employee Investment Mandate: AMCs are now required to invest a portion of employee salaries in mutual fund schemes based on their designation.
• Stress Testing and Disclosure: AMCs must conduct stress testing of certain schemes and provide disclosure of the results.
• Deployment of Funds: Schemes must deploy funds received in the new fund offer (NFO) within a specified time period.

These changes are expected to benefit investors through increased transparency, lower costs, and better fund performance, as fund managers will be incentivized to deliver real results.

Stockbroker Regulation Overhaul

The SEBI board also approved revisions to the Stockbroker Regulations 1992, marking a significant modernization of the regulatory framework. Key highlights include:

• Definition of Algorithmic Trading: For the first time, SEBI has formally defined algorithmic trading as any order generated or placed using automated execution logic. This clarification aims to streamline compliance requirements and address the evolving landscape of trading practices.
• Digital-First Approach to System Audit Supervision: Exchanges will establish dedicated web-based platforms to track every phase of the audit lifecycle, including scheduling, real-time status monitoring, report uploads, and compliance resolutions. Auditors must be chosen from an empanelled list and are limited to three audit cycles, followed by a two-year cooling-off period.
• Master Circular for Stock Brokers: SEBI issued a new Master Circular for Stock Brokers, effective from June 16, 2025, superseding the previous circular issued on August 9, 2024.
• Additional Registration Information: Stock Brokers are required to submit additional information during the registration process.
• Merger Regulations: If two or more corporate broking firms merge, the SEBI registration granted to the extinguished entity does not automatically transfer to the emerging entity. The new entity must meet the eligibility criteria and apply for registration anew.
• SEBI Intermediary Portal: All applications for registration, surrender, or other requests must be submitted exclusively through the SEBI Intermediary Portal.
• Internal Audit Requirements: Members are required to conduct a comprehensive internal audit on a half-yearly basis, carried out by an independent qualified professional.
• Sovereign Debt Trading: Brokers must create separate business units (SBUs) that operate independently and comply with RBI regulations, including capital adequacy norms and operational independence. SEBI retains oversight over the broker's equity and derivatives activities, while RBI supervises sovereign debt trading.

These changes aim to create a more resilient and globally competitive capital market ecosystem, with heightened responsibility for compliance and transparency for brokers.

Other Key Decisions

In addition to the mutual fund and stockbroker reforms, the SEBI board also considered a report recommending mandatory public disclosure of assets by senior officials to prevent conflicts of interest. The board also reviewed proposals to relax KYC requirements for NRIs and introduce a closing-auction session.