Economy & BudgetImportant2025-12-17

SEBI Overhauls Mutual Fund and Brokerage Regulations

Q: Which of the following statements is/are correct regarding the SEBI market reforms of December 2025? 1. The Base Expense Ratio (BER) for index funds and ETFs was reduced to 0.9 percent. 2. Transaction brokerage caps were set at 2 basis points for the derivatives segment.

1 only — Statement 1 is correct as SEBI lowered the BER for index funds and ETFs to 0.9 percent. Statement 2 is incorrect because the brokerage cap for the derivatives segment was slashed to 1 basis point, while the cash segment was capped at 2 basis points.

In News

What Happened

On December 17, 2025, at its 212th board meeting, the Securities and Exchange Board of India (SEBI) announced comprehensive overhauls to capital market regulations. The regulator replaced the decades-old Stock Brokers Regulations of 1992 and Mutual Funds Regulations of 1996. Key changes include slashing transaction brokerage caps and lowering the Base Expense Ratio (BER) for passive funds.

Why It Matters

These reforms aim to reduce transaction costs for retail investors and modernize the regulatory framework to reflect current market realities. By lowering expenses on index funds and clarifying IPO lock-in rules, SEBI is enhancing transparency and boosting investor participation in India's financial markets.

Background

History & Context

SEBI's previous regulatory frameworks for stock brokers and mutual funds were drafted in 1992 and 1996, respectively, long before the digital and passive investing boom. As market volumes surged, especially in derivatives and ETFs, the regulator formed expert committees to recommend modernized rules. This overhaul consolidates piecemeal amendments made over the last three decades into a streamlined, contemporary legal structure.

What Changed

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Brokerage Caps: Previously governed by older limits, transaction brokerage caps are now slashed to 2 basis points (bps) in the cash segment and 1 bps in the derivatives segment.
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Mutual Fund Expense Ratios: The Base Expense Ratio (BER) for index funds and Exchange Traded Funds (ETFs) has been lowered to a maximum of 0.9 percent, making passive investing cheaper.
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IPO Lock-in Rules: Pledged non-promoter shares at the time of an Initial Public Offering (IPO) are now marked as 'non-transferable' in the depository system to resolve lock-in complications.
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Regulatory Framework: The SEBI (Stock Brokers) Regulations, 1992, and the SEBI (Mutual Funds) Regulations, 1996, were completely repealed and replaced with updated 2025 regulations.

Prelims Angle

NCERT Connection

This aligns with Class 12 Business Studies Chapter 10 (Financial Markets), which explains the regulatory role of SEBI in protecting investors and developing the securities market. The lowering of brokerage fees and expense ratios directly illustrates SEBI's protective and developmental functions.

Practice Questions

Q1

Correct Statement(s)

Which of the following statements is/are correct regarding the SEBI market reforms of December 2025? 1. The Base Expense Ratio (BER) for index funds and ETFs was reduced to 0.9 percent. 2. Transaction brokerage caps were set at 2 basis points for the derivatives segment.

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