by In the last decade, mutual fund reforms in India have focused on transparency, investor protection, and cost efficiency. Key reforms include SEBI’s scheme categorization (2017–18), rationalizing overlapping schemes, and capping expense ratios to lower investor costs. Upfront commissions were banned to prevent mis-selling, promoting trail-based compensation. Introduction of Flexi-Cap funds and monthly risk-o-meter updates improved flexibility and risk transparency. Direct Plans gained popularity for offering higher returns. NAV rules were revised for fairness, and ESG fund regulations ensured ethical investing. Overall, these reforms enhanced trust, simplified investment choices, and supported sustainable growth in the mutual fund industry.
1. SEBI Categorization and Rationalization of Mutual Fund Schemes (2017–18)
To reduce confusion among investors due to overlapping schemes, SEBI mandated that mutual fund houses could offer only one scheme per category (except for sectoral/thematic funds). Funds were categorized into five broad categories:
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Equity
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Debt
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Hybrid
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Solution-oriented
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Others
This reform brought transparency, simplified scheme selection for investors, and improved comparability across AMCs.
2. Direct Plans and Regular Plans Separation (effective from 2013 but gained traction in the decade)
While Direct Plans were introduced in 2013, their popularity grew significantly in the last decade. Investors became more aware of lower expense ratios and higher returns in Direct Plans. This led to:
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More transparency in commissions
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Empowered DIY (Do-It-Yourself) investors
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Rise in fee-based advisory models over commission-based selling
3. Total Expense Ratio (TER) Revision (2018)
SEBI revised the TER limits, which are fees charged to investors for managing mutual funds. The revised structure was based on the fund’s asset size — the larger the fund, the lower the permissible TER.
Impact:
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Lower costs for investors
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Pressure on AMCs to be more efficient
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Increased investor returns, especially in large-sized funds
4. Ban on Upfront Commissions (2018)
SEBI banned upfront commissions paid to distributors and allowed only trail-based commissions. This step:
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Reduced mis-selling
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Aligned distributor incentives with long-term investor goals
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Encouraged ethical advisory practices
5. Risk-o-Meter Revamp (2021)
SEBI revamped the Risk-o-Meter, making it more dynamic and reflective of actual risk. Mutual funds are now required to:
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Review and disclose the risk level every month
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Use six risk levels (from Low to Very High) This change helps investors make more informed decisions based on current risk profiles.
6. Introduction of Flexi-Cap Category (2020)
SEBI introduced a new equity fund category: Flexi-Cap Funds, which must invest at least 65% in equities but can allocate freely across large-, mid-, and small-cap stocks.
This gave AMCs flexibility and investors a diversified option without strict market-cap constraints.
7. NAV Applicability Rule Change (2020)
SEBI changed the rule so that same-day NAV is applicable only if the fund receives the entire amount before the cut-off time. Earlier, NAV was based on application time, even if the money came later.
This ensures:
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Better alignment of inflow and NAV
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Fairness across investor types (especially between retail and institutional)
8. T+3 Redemption Settlement Cycle (2023)
SEBI proposed reducing the redemption payment time from T+4 to T+3 days (Transaction Day + 3), speeding up liquidity for investors. This is a part of broader efforts to enhance operational efficiency and investor experience.
9. Introduction of ESG Funds and Regulations (2021 onwards)
Environmental, Social, and Governance (ESG) investing gained traction, and SEBI set guidelines to ensure proper disclosures, sustainability-focused strategies, and benchmark alignment for ESG-labeled mutual funds.
It promotes responsible investing and transparency in ethical fund management.
10. Mandatory Disclosure of Portfolio (Monthly)
SEBI mandated monthly disclosure of mutual fund portfolios and risk metrics, including exposure to debt, credit ratings, and top holdings. This improved:
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Transparency
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Risk awareness
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Informed decision-making by investors
