The Securities and Exchange Board of India (SEBI) has clarified its position on mutual fund research while emphasizing the need for greater transparency from fund houses. Whole-time member Amarjeet Singh stated that the regulator supports research activities but wants to eliminate hidden costs that affect investor returns.
SEBI's Stance on Mutual Fund Overhaul
Speaking at the Confederation of Indian Industry's Financing Summit 2025, Singh addressed the ongoing debate surrounding SEBI's proposed mutual fund regulations. "We are not against research. It is good for the market and good for investors. We all acknowledge that. We are rooting for more transparency. We don't like hidden costs," Singh emphasized.
The regulator's proposed changes include significant reductions in brokerage and transaction costs. SEBI has recommended cutting brokerage limits from 0.12% to 0.02% for cash market transactions and from 0.05% to 0.01% for derivatives. These costs are currently charged to investors in addition to the Total Expense Ratio (TER), which represents the annual cap on fund operating expenses.
The consultation paper, which had a submission deadline of 17 November 2025, has faced resistance from fund houses and mutual fund distributors concerned about revenue impacts. Singh confirmed that SEBI is actively discussing these proposals with industry stakeholders.
Expanding Market Infrastructure
Beyond mutual fund reforms, SEBI is focusing on developing alternative investment instruments to strengthen India's financial markets. Singh highlighted three key areas where the regulator sees untapped potential.
Real Estate and Infrastructure Investment Trusts
Despite being established products, Real Estate Investment Trusts (Reits) and Infrastructure Investment Trusts (InvITs) have not gained the expected traction among Indian investors. "They are not so new, they have been around, but we are not seeing enough traction," Singh noted. "Much more can happen through these instruments."
The regulator is considering regulatory adjustments to boost participation. "We are looking wherever certain tweaks are required in the regulations to give it a thrust," he added.
Municipal Bonds Development
SEBI is actively working to revive India's municipal bond market, which has seen limited activity despite its potential for financing urban infrastructure projects. The regulator is conducting extensive outreach with municipal bodies and state governments.
"We are meeting municipalities. We are visiting state governments, doing outreach, educating them about how this municipal bond can be used," Singh explained.
He emphasized the governance benefits for municipal bodies issuing bonds: "Ideally, if a municipal body raises money through municipal bonds, it will undertake certain financial discipline in terms of reporting financials on time, professionalising activities, improving governance."
Green Bonds Potential
Despite India establishing a formal green bond framework in 2017, issuances have remained subdued. Singh revealed that only about $1 billion has been raised over the past eight years through this route.
The regulator identified the missing "greenium" or green premium as a key challenge. "Our understanding from the market is that there is a green premium which is missing. And the 'greenium', we would like to explore how we can help in the creation of that," Singh stated, indicating SEBI's openness to suggestions for market improvement.
Balancing Regulation and Growth
SEBI's dual approach focuses on creating a more transparent mutual fund industry while simultaneously developing alternative investment avenues. The regulator aims to protect investor interests through cost transparency while providing diverse investment opportunities through instruments like Reits, InvITs, municipal bonds, and green bonds.
As Singh concluded, the ongoing discussions with mutual fund industry participants will determine the final shape of regulations, while the push for alternative instruments represents a strategic move to deepen India's capital markets and support infrastructure development.
