SEBI’s reforms mark a significant step in modernising a decades-old framework, but further strengthening is needed in areas of governance, competence, and market conduct.

Mutual funds have steadily evolved from discretionary investment vehicles into core infrastructure for household financial intermediation. Globally, mutual fund assets across 40 countries expanded from USD 21.7 trillion in 2008 to USD 74.4 trillion by Q1 2025, reflecting sustained long-term growth in the industry.

India’s trajectory within this global expansion has been particularly striking. By Q1 2025, India ranked as the 13th largest mutual fund industry worldwide, accounting for 1.03% of global mutual fund assets. Over the same 18-year period, India’s mutual fund industry recorded a CAGR of 14.83% – significantly outpacing growth in the US (7.73%), Europe (6.05%), Africa (6.47%), and the broader APAC region (7.17%).

This sustained outperformance indicates that India’s mutual fund sector has reached a scale of systemic significance. With assets under management soaring to approximately USD 903.43 billion (INR 82.03 trillion as of February 2026) and a base of 53 million unique investors, the sector is now a cornerstone of household savings, rivalling the country’s banking system.

In response to this transformation, the Securities and Exchange Board of India (SEBI)  released a consultation paper in October 2025 proposing a comprehensive rewrite of its nearly three-decade-old 1996 regulations. Further, SEBI notified new mutual fund regulations on 14 January 2026. The new regulations aim to simplify, consolidate, and modernise a rulebook that has become fragmented by hundreds of circulars.

This reform is a meaningful step toward a cleaner, principle-based regulatory architecture. However, as the ecosystem becomes more retail-focused and digitally interconnected, its success will depend on whether SEBI’s framework genuinely promotes quality governance and conduct, and not just allows for a ‘tick-box’ approach to compliance.

A welcome modernisation

The 2026 regulations deliver several overdue structural improvements. They revise eligibility and net-worth/track-record requirements for sponsors, codify a clearer scheme-level exit-load framework, including a 3% ceiling. They also build on earlier amendments that align obligations for asset management companies (AMCs) with SEBI’s 2015 insider trading regulations.

Under the new framework, mutual fund units are now explicitly covered under the SEBI (Prohibition of Insider Trading) Regulations 2015. Importantly, AMCs are now responsible for monitoring insider trading in MF units including trades by employees, directors, and trustees which was not part of the earlier 1996 regulatory framework.

By consolidating numerous circulars into fewer, clearer regulations, SEBI is providing the industry with a much-improved compliance foundation. This direction is sound, but a closer look reveals foundational gaps that leave investors and the market exposed.

Governance gaps

Despite the structural clean-up, several issues central to investor protection and long-term market stability remain open.

First, while the new framework contains experience-based requirements for senior AMC roles such as CEO, COO, CRO, CCO, and CIO, it does not explicitly define academic or competency standards. This contrasts with international practice. A stronger approach would also include clear governance expectations and define responsibilities for senior executives.

Second, the identity of MF Lite as a low-cost inclusion product is at risk. The new regulations appear to apply the same 3% exit-load ceiling to MF Lite as it does to standard mutual funds. For the small, mass-market retail investors this product is designed for, even a 1-2% exit load can be a significant deterrent in an emergency.

There is a concern that MF Lite may evolve into a relatively governance-light regime for passive products. The exemption of key provisions, particularly trustee oversight (Regulations 9–12), AMC governance and compliance (Regulations 21–23), and detailed scheme-level scrutiny, reduces the multi-layered oversight present in the traditional mutual fund framework.

While this enhances efficiency and cost-effectiveness, it may also weaken monitoring, conflict-of-interest controls, and risk oversight, thereby raising investor protection concerns in a retail-focused segment.

Third, while strengthening several aspects of supervision, the new regulations leave scope for integrating rumour-verification requirements and digital market-intelligence mechanisms to address contemporary market risks. While bringing mutual fund units under the insider trading regime is a positive step, it does not address the speed at which digital misinformation can trigger redemption waves akin to a bank run. As global regulators enhance their supervisory expectations around market conduct, this remains a structural oversight in SEBI’s regulation.

Fourth, trustee oversight remains constrained. Although their roles are clarified, trustees often lack the independent data access, audit rights, and real-time monitoring capabilities needed for proactive, preventive oversight. Their effectiveness is limited when they must depend entirely on AMC-provided data.

Finally, the new regulations do not specifically engage with issues relating to structural concentration risk in the industry, where the top ten AMCs manage approximately 80% of total assets. Such concentration means that misgovernance or liquidity stress at a single large firm can have a disproportionate impact across the entire sector.

Competence and conduct

SEBI’s 2026 regulations successfully modernise the structure of India’s mutual fund rulebook. But for an industry that now underpins the financial security of millions, the next phase of regulatory evolution must focus less on formal compliance alone and more on the quality of governance, competence, and conduct.

As India’s mutual fund ecosystem grows in size and complexity, the regulatory regime must ensure that leaders are qualified, low-cost products are genuinely low-cost, digital risks are managed, oversight bodies are empowered, and market surveillance mechanism are strengthened. The international direction of travel combines simplification with stricter expectations on governance and fiduciary discipline.

SEBI has built a solid foundation. The next, more critical step is to ensure that competence and conduct – not just compliance – define the future of India’s mutual fund industry.

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By Saurabh Maheshwari, a policy research professional specialising in capital markets, financial regulation, and market surveillance, with over eight years of experience linked to the Department of Economic Affairs, Ministry of Finance, through the DEA-AJNIFM Research Programme at the Arun Jaitley National Institute of Financial Management. His research focuses on regulation, surveillance, financial technology, and investor protection. He is currently pursuing a PhD in Management at the Indian Institute of Foreign Trade, New Delhi. He has presented at RBI, IIM Ahmedabad, IIM Jammu, and IIT Delhi, and published in ABDC-ranked and peer-reviewed journals.