Asset Management and Funds Quarterly Milestones (January-March 2026)

SEBI has, with effect from 1 April 2026, replaced the earlier mutual fund regulation framework of 1996 with the SEBI (Mutual Funds) Regulations, 2026 (Updated MF Regulations). The revised regime seeks to simplify regulatory structure, rationalise cost structures, and strengthen governance for asset management companies (AMC), trustees and sponsors.

• Simplified framework and reduced compliance burden

  The Updated MF Regulations streamline the overall framework by prescribing clearer sponsor eligibility criteria and consolidating the roles of AMCs and trustees. Compliance has been eased through several measures, including through a reduced frequency of mandatory trustee meetings and permitting disclosures to be made on websites instead of mandatory newspaper advertisements, thereby reducing operational overhead.

• Revised expense framework and performance-linked fees

  The expense regime has been recalibrated by removing the additional 5 (five) ‘basis points’ charge that was earlier permitted for schemes levying exit load, thereby eliminating incremental expense headroom and simplifying the computation of the ‘total expense ratio’. This is accompanied by the exclusion of statutory levies from the prescribed expense limits and the introduction of a revised base expense ratio. The Updated MF Regulations also contemplate permitting performance-linked fees for AMCs, subject to further regulatory guidance, to align fee structures with fund performance.

• Tightened governance and sponsor eligibility norms

  The Updated MF Regulations strengthen the independence criteria for directors by linking it to their association, whether direct or indirect, with the company during the cooling off period. They set out the eligibility of private equity sponsors and clarify that an AMC’s vicarious liability is limited to acts involving negligence or breach of law or failure to comply with applicable laws.

In March 2026, the Government of India provided long-awaited relaxations to the foreign investment framework under Press Note 3 of 2020 (PN3) through Press Note 2 of 2026 (PN2).

PN3 had mandated prior government approval for investments into India:

• by entities situated in countries sharing a land border with India (LBC); or
• where the ‘beneficial ownership’ is situated in an LBC.

To address practical challenges and delays in procuring approvals under PN3, PN2 amends PN3 to remove ambiguities and streamline the approval process. Notably, it:

• prescribes a clear definition of ‘beneficial ownership,’ and exempts investments from LBCs where non-controlling beneficial ownership is less than 10% from government approval;
• introduces relaxations for investments from non-resident Indians (NRI) situated in such LBCs; and
• expedites approval timelines for investments in specified sectors.

These amendments are expected to significantly reduce regulatory and compliance burdens on foreign investments with limited LBC exposure while maintaining safeguards for sensitive investments.

To read our detailed update on the new framework under PN2, click here.

The Reserve Bank of India (RBI), through its updated FAQs dated 25 March 2026 (Updated RBI FAQs) on the Annual Return on Foreign Liabilities and Assets (FLA), has provided additional clarity on the scope, applicability, timelines, and reporting mechanics of the FLA framework. The FLA return remains a key compliance requirement for Indian entities with outstanding foreign investment, and the Updated RBI FAQs reiterate the principles for determining reporting applicability, including the test based on existing foreign assets and liabilities.

• Inclusion of IFSC/GIFT City entities

  A notable clarification in the Updated RBI FAQs is the apparent extension of the FLA filing requirement to entities registered with the International Financial Services Centres Authority (IFSCA) and operating from GIFT City. This suggests that GIFT-based fund management entities and AIFs, despite being set up in International Financial Services Centre (IFSC), may be required to undertake FLA reporting akin to domestic Indian entities.

• Regulatory tension – IFSCA’s positioning v. RBI’s mandate

  This position gives rise to a broader interpretational issue. GIFT City has been positioned as an international financial jurisdiction, operating under a distinct regulatory framework administered by the IFSCA. However, the Updated RBI FAQs appear to treat IFSC entities at par with domestic Indian entities for the purposes of FLA compliance, thereby creating ambiguity on the intended regulatory perimeter and compliance expectations for such entities.

  Accordingly, in response, IFSCA, through its circular dated 1 May 2026 addressed to financial institutions operating in the IFSC, has clarified that the implications of the Updated RBI FAQs are currently under discussion with the RBI. Pending such deliberations, IFSCA has expressly advised all IFSC entities to refrain from taking any action based on the updated FAQs, until further regulatory guidance is issued.