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Securities and Exchange Board of India (SEBI) | Ministry of Finance
The Securities and Exchange Board of India (SEBI) has notified the (Mutual Funds) Regulations, 2026, which are set to come into force on April 1, 2026. These regulations establish a comprehensive framework for the registration, operation, and management of mutual funds in India, superseding the 1996 regulations. A major highlight is the introduction of ‘Mutual Fund Lite’ (MF Lite), a specialized category for passive schemes like index funds and ETFs, designed with reduced regulatory requirements to foster innovation and accessibility.
Structural and Governance Framework
Institutional Setup: Mutual funds must be constituted as trusts with a registered trust deed and managed by an approved Asset Management Company (AMC).
Independence Requirements: At least two-thirds of the board of the trustee company and 50% of the AMC board must consist of independent directors to ensure unbiased oversight.
Sponsor Eligibility: Sponsors must meet stringent “sound track record” criteria, including a minimum of five years in financial services and specific net worth and profitability thresholds.
Operational Guardrails: AMCs are prohibited from acting as trustees and must maintain segregated activity-wise accounts for any other permitted business like portfolio management.
Investor Protection and Transparency
Enhanced Disclosures: Offer documents must be accurate and provide adequate information, including a Key Information Memorandum (KIM) with every application form.
Market Conduct: A strict Code of Conduct is mandated for AMCs, trustees, fund managers, and dealers to prevent market abuse and ensure equitable treatment of all unit holders.
Reporting Standards: Funds must issue a Monthly Consolidated Account Statement (CAS) to investors and provide a digital annual report within four months of the financial year-end.
Fair Valuation: Investments must be valued based on realizable value on a given date, with regular reviews by independent auditors.
What is ‘Mutual Fund Lite’ and how does it differ from a standard mutual fund? It is a new regulatory category specifically for entities managing only passive investment schemes, such as index funds and exchange-traded funds (ETFs). Unlike standard mutual funds that require complex active management oversight, MF Lite operates under a relaxed compliance regime, featuring lower net worth requirements for sponsors and simplified governance structures. This “lite” framework is intended to lower entry barriers for new players and reduce operational costs for schemes where the investment strategy is predetermined by a market index.
Policy Relevance
The 2026 regulations represent a strategic shift toward a more nuanced, risk-based regulatory environment that balances market growth with robust investor safeguards.
Strategic Impact:
Promoting Passive Investing: The MF Lite framework directly supports the global trend toward low-cost passive investing, making wealth creation more accessible to retail investors.
Institutionalizing Accountability: Mandatory whistleblower policies and the formation of a Unit Holder Protection Committee strengthen the internal checks and balances of fund houses.
Ensuring Systemic Stability: Stricter net worth continuous maintenance and quarterly reviews by trustees prevent the “hollowing out” of AMCs during market downturns.
Digital-First Compliance: Provisions for digital communication of scheme changes and automated reporting align mutual fund operations with India’s broader digital transformation goals.
Relevant Question for Policy Stakeholders: How can the introduction of ‘MF Lite’ be leveraged to specifically incentivize the launch of regional-language focused index funds that target first-time investors in Tier-II and Tier-III cities?
Follow the full news here: Mutual Funds Regulations 2026