SEBI Updates Mutual Fund Fee Structure to Benefit Investors
On December 17, 2025, SEBI announced important changes to mutual fund rules, focusing on making costs more transparent for everyday investors. This blog breaks it down simply so you know what is changing and why it matters to you.
Understanding the New Mutual Fund Cost Structure
SEBI has revised the old Total Expense Ratio (TER) framework. Under the new system, TER will comprise several separate components, providing investors with a clearer understanding of what they are paying for.
| Expense Type | Description |
|---|---|
| Base Expense Ratio (BER) | Core fee charged by the fund house for managing your investments |
| Brokerage Costs | Fees paid to brokers for buying/selling securities |
| Regulatory & Statutory Levies | Includes GST, STT, stamp duty, SEBI, and exchange fees |
This means statutory taxes and levies will be shown separately from the core fund fee rather than bundled into a single number.
Revised Fee Caps Across Schemes
SEBI has also lowered the regulatory cap on expense ratios for many categories of mutual funds in India. The caps are now based on the new Base Expense Ratio (BER) concept and are generally lower than before.
| Mutual Fund Category | Earlier expense limit | Revised expense limit |
|---|---|---|
| Index Funds & ETFs | 1.00% | 0.90% |
| Equity FoFs (≥65% equity) | 2.25% | 2.10% |
| Other FoFs | 2.00% | 1.85% |
| Close-Ended Equity | 1.25% | 1.00% |
| Open-Ended Equity (varies by size) | 2.25% to 1.05% | 2.10% to 0.95% depending on AUM size |
These changes mean that expense ratios for equity funds, ETFs, and other schemes will now be capped at lower levels than before, excluding statutory taxes, making it easier to compare pure management costs.
Brokerage and Transaction Cost Caps Lowered
SEBI has also tightened how much mutual funds can pay as brokerage to brokers, which ultimately affects fund expenses passed on to investors.
| Transaction Type | Earlier brokerage limit (including statutory levies) | Revised brokerage limit (excluding statutory levies) |
|---|---|---|
| Equity cash market | Up to 12 basis points | 6 bps |
| Derivatives segment | Up to 5 basis points | 2 bps |
Removal of Additional Charges
SEBI has removed the extra 5 basis points that fund houses were previously permitted to charge in some situations, such as those linked to exit loads. This further rationalises the overall costs investors face. Here is how these updates can matter to you as an investor:
Clear visibility on charges
Investors will be able to see how much they are paying towards fund management, brokerage, and statutory taxes separately instead of everything being merged into a single figure.
Better control of expenses
SEBI has tightened the limits on core fund expenses across several categories. This puts a ceiling on how much fund houses can charge investors.
Lower impact of trading costs
With reduced brokerage limits, the cost of buying and selling securities within a fund may come down, which can support returns over longer holding periods.
For those planning to invest in mutual funds with long term goals in mind, these changes bring more clarity and reduce the chances of hidden costs affecting returns.
Conclusion
SEBI will introduce these changes in a phased manner. Together, they mark an important shift in how mutual fund expenses are regulated. The overall direction is towards stronger investor protection, simpler disclosures, and a more transparent cost structure across the mutual fund ecosystem.