India’s market regulator, the Securities and Exchange Board of India, has proposed major changes to mutual fund rules that aim to cut costs for investors and boost transparency. This move, announced on October 29, 2025, caused shares of top asset management companies like HDFC AMC and Nippon Life India to drop up to 10 percent in early trading, shaking the capital markets.
Key Proposals from SEBI
The proposals focus on simplifying mutual fund operations and making them fairer for everyday investors. SEBI wants to remove extra charges that have built up over time, which could save money for millions of people with mutual fund accounts.
One big change is scrapping the additional 5 basis points that asset managers could charge on schemes. This fee started in 2012 at 20 basis points to cover exit loads but dropped to 5 basis points in 2018. Now, SEBI says it is time to end it completely to lower costs.
To balance this for companies, SEBI suggests raising the expense ratio limits slightly in the first two slabs for open ended active schemes. This tweak aims to keep asset managers running smoothly without hurting investors too much.
SEBI also plans to cap brokerage fees to stop overcharging. For cash market deals, the cap would fall from 12 basis points to 2, and for derivatives, from 5 to 1. These steps are part of a push for clearer rules and less hidden fees.
The regulator noted that the mutual fund industry now handles over 77 trillion rupees in assets, up from just 8 trillion in 2013. With 25 crore investor accounts, these changes could affect a huge number of people.
Stock Market Reaction
Shares of several companies took a hit right after the news broke. Investors worried that lower fees might squeeze profits for asset managers and related firms.
HDFC AMC saw its stock fall by about 6.4 percent to around 5,288 rupees. Nippon Life India AMC dropped 7 percent to 880 rupees. Other players like Nuvama Wealth Management plunged 9 percent to 6,760 rupees.
Motilal Oswal Financial Services lost over 5.5 percent, trading at 1,031 rupees. Prudent Corporate Advisory Services, which deals in wealth management, fell 3.5 percent to 2,619 rupees.
Even firms like Computer Age Management Services, a key player in fund transfers, dropped 4 percent to 3,828 rupees. UTI AMC and Canara Robeco also saw declines of 2.2 percent and 4 percent.
This sell off shows how sensitive the market is to regulatory shifts. Analysts say the changes could cut profits by 30 to 33 percent for big names like HDFC and Nippon by 2027.
| Company | Stock Drop Percentage | Trading Price (Rupees) |
|---|---|---|
| HDFC AMC | 6.4% | 5,288 |
| Nippon Life India AMC | 7% | 880 |
| Nuvama Wealth Management | 9% | 6,760 |
| Motilal Oswal Financial Services | 5.5% | 1,031 |
| Prudent Corporate Advisory Services | 3.5% | 2,619 |
| Computer Age Management Services | 4% | 3,828 |
| UTI AMC | 2.2% | 1,274 |
| Canara Robeco AMC | 4% | 325 |
Why These Changes Matter Now
The mutual fund sector has grown fast in India, starting from the Unit Trust of India in 1963. Today, it attracts 6 percent of household savings, far more than direct stock investments at under 1 percent.
SEBI’s move comes amid rising concerns about high fees and lack of transparency. Recent data shows 73 percent of mutual fund units get redeemed within two years, meaning investors often face costs without long term gains.
By introducing performance linked expense ratios, SEBI wants fund managers’ earnings to match investor returns. This could encourage better performance and keep more money in investors’ pockets.
The proposals also allow mutual funds more flexibility, like expanding into global markets and wealth advisory services. This follows industry requests to relax old rules from Regulation 24(b).
Experts point to past changes, like the 2018 cap on expense ratios at 2 percent and the shift to trail only commissions. These helped build trust but also pressured profits.
Industry and Expert Views
Many in the industry see this as a mixed bag. Asset managers worry about short term profit dips, but some believe it will lead to healthier growth.
Analysts from firms like Jefferies predict a 30 percent drop in profits before tax for top AMCs by 2027 due to lower expense ratios. However, they note that excluding statutory levies like GST and stamp duty from TER limits could soften the blow.
Investors and advisors on social media platforms are buzzing. Posts highlight how these changes promote financial inclusion, especially for women and rural investors through revised incentives.
One recent event tying into this is SEBI’s September 2025 push to cut exit loads from 5 percent to 3 percent and boost focus on new investors in smaller cities. This overhaul builds on that momentum.
- Lower fees could attract more retail investors, growing the market overall.
- Performance based ratios might push fund managers to deliver better results.
- Caps on brokerages aim to end double charging and build trust.
What Investors Should Do
For mutual fund holders, these proposals mean potentially lower costs and more transparent fees. It is a good time to review your portfolio and see how expense ratios affect your returns.
New investors might find mutual funds more appealing with reduced charges. Keep an eye on final rules, as SEBI is open to feedback until November 2025.
Long term, this could make India’s mutual fund industry more competitive globally, similar to low cost models in the US.
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