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Russian (RU) The market regulator, Sebi in its board meeting held on Friday, approved proposals facilitating enhanced investor protection and financial inclusion in the mutual fund space. Here’s a breakdown of the changes based on the board’s decisions:
1. Slashing maximum permissible exit load
Sebi has reduced the maximum permissible exit load from 5% to 3%. According to the market regulator, the present regulatory framework for mutual funds (MFs) permits mutual fund schemes to charge a maximum exit load of 5%, which gets credited back to the scheme.
However, mutual funds generally charge exit loads in the range of 1% to 2%. Hence, reducing the maximum exit load would align the regulatory requirement with the prevailing industry practice. Setting the maximum cap at 3% was found appropriate so as to strike a better balance between investor protection and flexibility for schemes having exposure to less liquid securities.
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2. Revision of incentive structure for MF distributors from B-30 cities
The market regulator has decided to revise the incentive structure and provide incentive to distributors only for investment/inflows from new individual investors (new PAN) from B-30 cities.
The market regulator has decided that the incentive will be provided to the distributor for new investor at the industry level and such incentive shall be capped at 1% of the first application amount (in case of lumpsum investment) or total investment during the first year (in case of SIP) subject to a maximum of Rs 2,000.
3. Considering scope of gender inclusion in mutual fund space
Considering the scope of gender inclusion in the mutual fund space, the market regulator has decided to incentivize distributors to create awareness and promote financial inclusion among women investors.
It has further decided that an additional commission shall be paid to distributors for investment/inflows from new women individual investors (new PAN) at the industry level. The computation and payment of such commission shall be on the same lines as for B-30 incentive.
According to the release by Sebi, these proposals were placed before the Mutual Fund Advisory Committee in January 2023 then a consultation paper was issued in May 2023 for public comments. Further, in order to ensure alignment with the view of the industry, the proposals were also discussed with industry stakeholders in July 2025 and based on the feedback from the industry the above proposals were finalized and placed before the Board for consideration.
Some other key decisions
Sebi in order to facilitate enhanced participation of mutual funds in Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (InvITs), has approved the amendments to SEBI (Mutual Funds) Regulations, 1996 for inter- alia re-classifying REITs as “equity” and retaining the “hybrid” classification for the InvITs, for the purpose of investments by Mutual Funds and Specialized Investment Funds (SIF).
The re-classification was proposed, inter-alia considering the characteristics of REITs i.e., being more inclined towards equity, relatively more liquid, and to ensure alignment with global practices.
InvITs, on the other hand being products primarily privately placed with more stable cash flows and having lesser liquidity, the hybrid classification was proposed to be retained
According to the release by Sebi, pursuant to the re-classification of REITs, investment by mutual funds shall be considered within the investment allocation limit for equity instruments and also make them eligible for inclusion in equity indices, thereby enabling enhanced investment by mutual fund schemes in REITs.
Further, as a result of equity classification of REITs, the existing investment limit applicable for both REITs and InvITs would now be exclusively available for InvITs, thereby facilitating growth in this segment also.
The aforementioned proposals were prepared factoring in feedback received in public consultation in April 2025, and detailed deliberations with the Mutual Fund Advisory Committee (MFAC), concerned industry associations and stakeholders.
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