SEBI Reforms Reshaping India’s Financial Markets: What Investors Should Know

India’s financial industry is undergoing a meaningful transformation as the Securities and Exchange Board of India (SEBI) rolls out wide-ranging regulatory reforms. Approved during 2025, these measures span mutual funds, IPOs, stock broking, debt markets, and investor services. The objective is clear: strengthen investor protection, simplify compliance, and modernise India’s capital market framework.

Mutual Fund Cost and Transparency Reforms

A key pillar of SEBI’s financial market reforms is the restructuring of mutual fund expense norms. The introduction of a Base Expense Ratio (BER) and a revised Total Expense Ratio (TER) framework provides investors with a clearer, itemised view of costs.

AUM-based expense slabs: SEBI has mandated a slab-wise structure linked to Assets Under Management (AUM), under which the maximum permissible BER progressively declines as a scheme’s AUM increases. This applies across equity-oriented schemes, debt and other-than-equity schemes, index funds, ETFs, fund-of-funds, and close-ended schemes. The intent is to ensure that economies of scale are passed on to investors, with larger schemes operating at materially lower expense ratios than smaller funds. (Schedule of Revised Mutual Fund Expenses Ratio)

Brokerage slabs and caps: Brokerage costs charged to mutual fund schemes have also been rationalised. For cash market transactions, the brokerage cap has been reduced to 6 basis points, while for derivative transactions it has been lowered to 2 basis points, both exclusive of statutory levies. In addition, the earlier allowance of extra brokerage linked to exit loads has been removed. These changes directly reduce trading costs borne by schemes and improve overall cost efficiency.

Together, the AUM-based expense slabs and lower brokerage caps are designed to make mutual fund investing more affordable, transparent, and aligned with investor interests

Simplified IPO Disclosure Framework

SEBI has streamlined the initial public offering (IPO) process by introducing a standardised, abridged prospectus at the draft offer stage. This concise disclosure format makes IPO documents easier for retail investors to understand while maintaining essential information. Additionally, technology-enabled solutions for lock-in of pledged shares address long-standing operational challenges faced by issuers.

Modernisation of Stock Broker Regulations

The replacement of the 1992 stock broker regulations with the SEBI (Stock Brokers) Regulations, 2025 marks a major regulatory reset. The new framework updates definitions to reflect modern trading practices, allows electronic record-keeping, removes outdated provisions, and introduces joint inspections. Stock exchanges will act as first-line regulators, improving supervision efficiency while reducing duplication.

Boost to Corporate Bond and Debt Markets

To encourage retail participation in corporate debt, SEBI has approved incentives such as higher interest or discounted issue prices for specific investor categories. At the same time, compliance norms for high-value debt listed entities have been rationalised by raising eligibility thresholds and aligning governance requirements with equity-listed companies.

Faster and Paperless Investor Services

SEBI has simplified several investor service processes by enabling direct credit of securities to demat accounts without physical confirmation letters. Processing timelines have been significantly reduced, and a special window has been introduced to facilitate dematerialisation of old physical share certificates. These steps enhance convenience and reduce operational risk for investors.

Expanded Role for Credit Rating Agencies

Credit rating agencies are now permitted to rate instruments regulated by other financial sector authorities, even where specific guidelines do not exist. SEBI has prescribed disclosure and segregation norms to safeguard investor interests while supporting broader development of the debt market.

Conflict of Interest Framework: Deferred for Review

While SEBI approved most reform proposals, it deferred decisions related to conflict-of-interest norms for its board and senior officials. The framework will be revisited after further stakeholder consultation.

Conclusion

SEBI’s 2025 reforms collectively aim to create a more transparent, efficient, and investor-friendly financial ecosystem. By reducing costs, simplifying disclosures, modernising regulations, and improving investor services, these changes strengthen confidence in India’s financial markets and support sustainable long-term growth.