The Securities and Exchange Board of India (SEBI) has put forward a major overhaul of mutual fund fee structures aimed at bringing greater transparency, lower costs, and clearer disclosures for investors. These proposed changes mark one of the most significant reforms in mutual fund regulations in decades, impacting how fees are calculated, disclosed, and charged.
SEBI has introduced the concept of a Base Expense Ratio (BER), which reflects the core cost of managing a mutual fund without including taxes and statutory levies. Meanwhile, the Total Expense Ratio (TER) will be redefined to include BER plus brokerage, regulatory fees, and statutory levies such as GST and Securities Transaction Tax (STT), which are now shown separately. This change will help investors better understand what they are paying for actual fund management versus external costs.
Under the new proposal, SEBI has reduced the caps on expense ratios for several categories of mutual funds. For instance, index funds and ETFs will see their BER cap drop from 1% to 0.9%, and equity close-ended funds will be capped at 1% from 1.25%. These reductions are intended to ensure that fund houses share the benefits of industry economies of scale with investors.
SEBI plans to significantly reduce the allowable brokerage fees that mutual funds can pass on to investors. Proposed limits include lower caps for cash and derivatives trades, which can help reduce overall costs ingrained within TER. This reform aims to eliminate hidden cost layers where brokers’ service fees were previously bundled within broader expenses.
In an effort to rationalize costs for investors, SEBI has proposed removing the additional 5 basis points that fund houses were allowed to charge across schemes related to exit loads. This fee was originally introduced to offset distribution costs but is considered no longer necessary. Its removal is expected to directly benefit unitholders by reducing total charges borne by investors
By separating statutory levies (GST, STT, CTT, stamp duty) from expense ratio limits and mandating detailed disclosure of all charge components, SEBI aims to provide unprecedented clarity on mutual fund costs. Investors will be able to see exactly how much they pay for fund management versus external tax and regulatory charges — a major step forward in fee transparency.
These proposed changes are designed to improve cost efficiency, fairness, and clarity for mutual fund investors. By breaking down costs more transparently and lowering certain fee caps, SEBI’s reforms could enhance long-term returns from mutual fund investments and make fee comparisons across fund houses easier. While some industry players have raised concerns about the impact on margins, investors stand to benefit from a clearer picture of the actual costs they incur
SEBI’s new mutual fund fee proposal reflects an important focus on investor rights and cost transparency. Whether you’re a seasoned investor or just starting your mutual fund journey, understanding these changes will help you make smarter, cost-effective decisions. With clearer fee structures and tighter cost controls, the proposed reforms aim to make mutual funds more investor-friendly and transparent than ever before.