Mutual Funds Regulations, 2026: SEBI Introduces Comprehensive Framework Governing AMCs, Trustees and Mutual Fund Schemes

Securities and Exchange Board of India (SEBI) has issued the SEBI (Mutual Funds) Regulations, 2026 replacing the old mutual fund regulations. The rules apply to mutual funds, sponsors, trustees, asset management companies, custodians, and other persons connected with mutual fund business.

Why New Regulations Were Issued

Earlier, mutual fund rules were spread across many amendments and circulars. This made understanding and compliance difficult. SEBI has now brought all important rules into one regulation.

The new regulations focus on investor safety, transparency, and responsibility of mutual fund entities. SEBI wants mutual funds to work in disciplined manner and follow proper governance.

Structure of the Regulations

The regulations are divided into different chapters. These chapters deal with definitions, registration of mutual funds, eligibility of sponsors, role of trustees, appointment of AMCs, scheme rules, custody of assets, compliance, and enforcement.

All mutual funds registered with SEBI must follow these regulations for all their schemes.

Meaning of Important Terms

The regulations clearly define important words like mutual fund, sponsor, trustee, AMC, custodian, unit holder, scheme, open-ended scheme, close-ended scheme, and exchange traded fund.

Clear definitions help in reducing confusion. All entities must follow meaning given in the regulations.

Registration of Mutual Funds

To start a mutual fund, sponsor must apply to SEBI in prescribed form and pay fees. SEBI can ask for more information before granting registration.

SEBI will grant registration only if it is satisfied that sponsor meets all conditions. If conditions are not met, SEBI can reject application.

Conditions for Sponsors

• Sponsors are persons or companies who set up mutual fund. Under the new regulations, sponsor must meet strict conditions.
• Sponsor must have good reputation, experience in financial services, and enough financial strength. Sponsor must also ensure AMC maintains required net worth.
• Sponsors and their key persons must be fit and proper persons. Any person involved in fraud or serious offence is not allowed to act as sponsor.
• The regulations also put limits on sponsor shareholding and require lock-in in some cases. This ensures sponsor remains committed to mutual fund business.

Restrictions on Control and Ownership

The regulations restrict one group from controlling many mutual funds. Sponsor or its group companies cannot control more than one AMC beyond allowed limits.

This rule is to prevent concentration of power and conflict of interest.

Exit of Sponsor and Surrender of Registration

Sponsor can exit from mutual fund only after taking SEBI approval. SEBI will ensure that investor interest is protected during exit. Registration of mutual fund can be surrendered only after winding up schemes and following SEBI directions.

Trust Structure and Trustees

Every mutual fund must be set up as trust under trust deed. The trust deed must contain clauses required by SEBI. Trustees play very important role. They protect interest of investors. At least two-third trustees must be independent.

Chairperson of trustee board must be independent trustee.

Duties of Trustees

• Trustees must appoint AMC with SEBI approval and sign agreement with AMC.
• They must check that AMC has proper systems, staff, and controls. Trustees must review compliance reports and audit reports.
• If trustees find any violation, they must take action and inform SEBI. Trustees cannot remain silent or inactive.

Custodian of Assets

• The regulations require appointment of registered custodian to keep scheme assets safe.
• Custodian must not have close connection with sponsor or AMC beyond allowed limits.
• Custodian must keep scheme assets separate and protect securities and other assets.

Asset Management Companies (AMCs)

• AMCs manage money of investors. Under the regulations, AMC must be approved by SEBI and meet eligibility conditions.
• AMC board must have independent directors. AMC must appoint key officials like CEO and compliance officer.
• AMC must follow SEBI rules and directions at all times.

Duties of AMCs and Employees

• AMCs must manage schemes only for benefit of investors. They must follow scheme objectives and investment limits.
• Employees must follow code of conduct. Misuse of information and self benefit is not allowed.
• All investors must be treated equally. Conflicts of interest must be disclosed.

Compliance and SEBI Powers

• The regulations require AMCs and trustees to maintain compliance systems and internal audits.
• SEBI has power to inspect records, seek information, and take action for violations.
• SEBI can suspend or cancel registration if rules are broken.

From 1 April 2026, all mutual fund entities must follow these rules

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