Will SEBI’s New Index Rules Impact Your Mutual Funds?

The SEBI (Securities and Exchange Board of India) has initiated a considerable move to strengthen the governance framework surrounding the benchmarks used by the mutual fund industry.

On 19 January 2026, SEBI released a consultation paper proposing a specific financial threshold to classify market indices as "significant indices". The proposal states that any index that is tracked or used as a benchmark by domestic mutual fund schemes with cumulative AUM (Assets Under Management) >₹20,000 Cr. will fall under the ambit of the newly notified Index Providers Regulations, 2024.

The regulator has also outlined a specific methodology for this classification. The cumulative AUM needs to be computed using the daily average AUM of domestic mutual fund schemes. This calculation would apply to each month over the preceding six months.

The assessment is scheduled to occur twice a year. At present, the specific dates for the same are set to 30 June and 31 December. According to data from January 1 to June 30, 2025, SEBI has already identified 47 indices across equity, debt, and hybrid categories that are meeting this criterion.

The proposal is open for public comments until 10 February 2026. But there is an important question for the investors: with benchmarks coming under scrutiny, will this lead to more transparent NAV calculations for your portfolio?

Reason for the ₹20,000 Cr. Threshold

The main reason for this threshold is to enhance transparency and accountability in the administration of indices that influence huge investor wealth.

ETFs (Exchange Traded Funds) and index funds are gaining popularity, but the benchmarks they track have become a crucial infrastructure for the financial markets. SEBI aims to bring providers of these indices under a formal registration framework. It also aims to ensure that the governance of these benchmarks is strong and standard.

Also, the threshold calculation method is designed to be comprehensive. So, if a mutual fund scheme tracks more than one index, only the portion of the AUM attributable to each specific index will be considered for the calculation.

Similarly, in "index of indices," the AUM tracking the underlying indices will be included in proportion to their respective weights. With this process, even complex fund structures can be accurately captured.

Industry experts have pointed out that this framework can help distinguish specific mutual funds and expose them to broader market implications. But does higher regulatory oversight on indices give you more confidence in passive investment strategies?

Who Falls Under the New Regulations?

The preliminary assessment of data from the first half of 2025 suggests that the impact of this regulation will be widespread among major market players.

As many as 47 ‘significant indices’ are already identified. They are mainly administered by entities such as BSE Index Services, NSE Indices, and CRISIL. The list also includes widely tracked market parameters such as the BSE Sensex, Nifty 50, Nifty Bank, Nifty 500, and BSE 500.

The ‘significant indices’ encompass various sectoral, duration-based, and money market indices that serve as performance benchmarks for a multitude of schemes.

The draft circular states that the providers of these indices will be required to apply for a SEBI registration within six-months of the circular’s issuance. But there are notable exemptions.

Index providers whose ‘significant indices’ are already regulated by the RBI (Reserve Bank of India) (including benchmarks notified by the central bank) are exempted from registering.

Furthermore, SEBI has clarified the grievance redressal mechanism under the regulations. This will exclusively apply to ‘significant indices’ offered by registered providers. Thus, the subscribers to these regulated indices have a formal system to address complaints within the SEBI framework.

A Step Towards Market Maturity

SEBI’s proposal can be seen as an important step in the evolution of India's passive investment landscape. It has formally recognised and regulated "significant indices." With this, the regulator is acknowledging that index providers are no longer just data aggregators but systemic pillars of the investment ecosystem.

The move also aligns with global best practices where the integrity of benchmarks is paramount for investor trust. Market participants are waiting to see how these regulations shape the operational compliance of major index providers. For investors, this means an added layer of security and recourse.

Source

Livemint