MF regulation, fixing IPO lock in, discount to investors on debt issues: SEBI board clears key proposals

For open-ended equity-oriented schemes, SEBI approved a graded structure with expense ratios tapering as assets rise, reducing to 0.95% for schemes with assets exceeding Rs 50,000 crore, compared with 1.05% earlier.

The board of Securities and Exchange Board of India (SEBI) approved sweeping reforms covering mutual fund and stock broker rules, IPO disclosures and lock-in norms, incentives for debt securities, and easier issuance and conversion of physical shares. It also cleared amendments allowing credit rating agencies to rate instruments under other regulators and raised the HVDLE threshold to Rs 5,000 crore to ease compliance. However, recommendations of the high-level committee on conflict of interest were deferred for further deliberation. Moneycontrol had previously reported the board agenda on Tuesday.

SEBI board has cleared the proposal to reduce base expense ratio for different category of funds. For Index Funds and ETFs- Expense ratio will be reduced from 1.00 percent to 0.90 percent (excluding statutory levies). Fund of Funds (FoFs): Investing in liquid schemes, index funds, or ETFs reduced from  1.00 percent to 0.90 percent; investing more than 65 percent in equity schemes reduced from 2.25 percent to  2.10 percent; other FoFs reduced from 2.00 percent to 1.85 percent. In Other Open-Ended Schemes: Expense ratios decrease as fund size (AUM) increases—funds up to Rs 500 crore: 2.10 percent from 2.25 percent (equity), 1.85 percent from existing 2.0 percent (others). The reduction is in the range of 10-15 bps based on AUM slabs. In Close-Ended Schemes: Equity-oriented reduced from 1.25 percent to 1.00 percent, others from 1.00 percent to 0.80 percent. SEBI said, the Total Expense Ratio (TER) will now be the sum of Base expense Ratio, brokerage, regulatory levies and statutory levies.

As part of the comprehensive review the brokerage limits have also been rationalised. For cash market transactions the existing brokerage cap of 12 bps includes statutory levies and with net of it comes to 8.59 bps which will now be reduced to 6 bps exclusive of levies. For derivative transactions the existing brokerage cap of 5 bps includes statutory levies. The cap on brokerage net of statutory levies amounts to 3.89 bps which has now been reduced to 2 bps excluding levies. SEBI has earlier proposed 2 bps for cash transactions and 1 bps for derivative transactions. SEBI has also removed additional 5 bps currently permitted to be charged to schemes with exit loads as a transitory measure. SEBI claimed that with the changes the regulation and compliances have been made easy.

In a move aimed at easing the IPO process for companies by removing long-standing operational hurdles, SEBI board cleared amendment to the regulation related to IPOs to allow pledged shares to be locked-in through a new, technology-enabled framework. Under current ICDR Regulations, the entire pre-issue capital held by persons other than the promoters, except shares held by certain specified categories of shareholders, is required to be locked-in for a period of six months from the date of allotment in the IPO. Certain issuers face challenges in complying with such lock-in requirements, particularly in cases where pledges have been created by non-promoters prior to the IPO. SEBI board approved amendment to ICDR to prescribe that in case lock-in of the specified securities cannot be created, the depositories shall record such securities as non-transferable for the duration of the applicable lock-in period.

SEBI board also approved the introduction of a concise and standardised draft abridged prospectus at the DRHP stage to make IPO disclosures easier for retail investors. This will be in addition to the abridged prospectus filed at the RHP stage, with disclosures also being rationalised and hosted on prescribed websites.

SEBI board also approved overhaul of the Stock Brokers Regulations by replacing the 1992 framework with the new SEBI (Stock Brokers) Regulations, 2025 to simplify rules and ease compliance. The new regulation will include definition of Algo trading and re-define other terms as per the changed market scenario. The new regulation will have clearer language, remove repetitive and outdated provisions, and update norms in line with current market practices. Unnecessary schedules and chapter have been deleted and relevant provisions consolidated to improve readability. Registration forms will now be prescribed through circulars in consultation with the industry.

SEBI has also simplified compliance requirements such as allowing electronic maintenance of records, and enabled joint inspections to reduce regulatory burden. Criteria for identifying “qualified stock brokers” have been rationalised to focus enhanced supervision on brokers with large client bases and higher trading volumes. Reporting responsibilities have been shifted to stock exchanges as first-line regulators, including reporting of non-compliance and submission of financial statements. Obsolete provisions, such as those relating to physical share delivery, have been removed.

To boost retail participation and encourage public issuance of corporate debt, SEBI board has approved the framework of debt securities. Under the revised framework, debt issuers will be allowed to offer incentives such as additional interest or a discount on issue price to specific investor categories, including senior citizens, women, defence personnel, widows or widowers of defence personnel, and retail individual investors. These incentives will apply only to initial allottees and not on subsequent transfers.

In a move to simplify investor services like issuance of duplicate shares and others issues, SEBI board has cleared the proposal to do away with the need of for issuing Letters of Confirmation (LOC) by RTAs and listed companies. Instead, securities will be credited directly to an investor’s demat account after due diligence for services such as duplicate certificate issuance, transmission, transposition, claims from unclaimed suspense accounts and corporate actions. The change will cut the processing timeline from about 150 days to around 30 days, reduce the risk of loss or misuse of LOCs, and significantly improve investor convenience.

To facilitate transfer of physical securities in genuine cases, SEBI will special window for allowing investors holding original physical share certificates and valid transfer deeds executed before April 1, 2019, to lodge them during a special, time-bound window. The facility will be subject to conditions and due diligence by RTAs and listed companies, while disputed or fraudulent cases will remain excluded. If the transfer deed was executed and shares were lodged before 1st April 2019 with original share certificate in custody they will be eligible under the new window. In case lodged before 1st April 2019 but rejected or returned even then it will be eligible for demat. This window will not be available who do not have physical share certificates.

SEBI board also approved allowing credit rating agencies to rate financial instruments that fall under the jurisdiction of other financial sector regulators, even where specific rating guidelines are not in place. The move is aimed at easing business and expanding the availability of ratings, especially for unlisted debt instruments, which will support broader debt market development. To safeguard investors, SEBI has prescribed clear segregation and labelling of such ratings, separate disclosures and grievance mechanisms, upfront client disclosures, clarification that SEBI investor protection will not apply, and additional net worth requirements where mandated by other regulators.

Board also approved key relaxations for High Value Debt Listed Entities (HVDLEs) to ease compliance and promote corporate bond issuance. The threshold for identifying HVDLEs has been raised to outstanding non-convertible debt of Rs 5,000 crore from Rs 1,000 crore, benefiting entities such as NBFCs, HFCs, ARCs, insurers and REITs. SEBI has also aligned governance norms for HVDLEs with equity-listed companies, including changes to board, subsidiary, insolvency-related and secretarial compliance requirements. Related-party transaction norms have been harmonised, while retaining debenture-holder safeguards.

The board of SEBI has also approved to simplify the transfer of unclaimed amounts for listed non-convertible securities. Issuers will now make a one-time transfer after seven years from maturity, instead of multiple transfers, aligning with Companies Act norms and giving investors more time to claim dues.

SEBI board decided to defer a decision on recommendations of High-Level Committee to comprehensively review of norms on conflict of interest, disclosures and related matters concerning SEBI’s board members and officials. The board, in light of public and media feedback, employee concerns and operational considerations.