SEBI's Mutual Fund Expense Overhaul: Relief for Investors and Fund Houses

SEBI approved a revised Total Expense Ratio (TER) framework at its recent board meeting, introducing Base Expense Ratio (BER) caps that exclude statutory levies like GST and STT for greater transparency. This change reduces overall costs for investors while providing fund houses with a more balanced structure after industry consultations. The move aligns brokerage caps with market realities, easing pressures on mutual funds (MFs) and brokerages

Key BER Changes by Scheme Type

Open-ended equity schemes now face BER caps from 2.10% (under ?500 crore AUM) down to 0.95% (over ?50,000 crore), a roughly 10 bps cut across slabs versus the proposed 15 bps. Debt schemes range from 1.85% to 0.70% in similar slabs, while passive products like index funds and ETFs drop to 0.90% from 1%. Close-ended equity and debt funds cap at 1% and 0.80%, respectively, and fund-of-funds limits adjust to 2.10% for equity-oriented and 1.85% for others

Brokerage Caps Rationalized

Cash market brokerage drops to 6 bps (exclusive of levies) from an effective 8.59 bps net, while derivatives fall to 2 bps from 3.89 bps net—higher than the consultation paper's 2 bps and 1 bps proposals. These adjustments follow broker feedback, aligning closer to industry norms on a post-tax basis. Exit load-related 5 bps charges are eliminated, further streamlining costs

Industry Reaction and Implications

SBI Mutual Fund's DP Singh called the changes "not materially significant" but praised the transparency from separating taxes. For Indian investors like technical analysts tracking portfolios, lower effective TERs could boost net returns in equity and debt funds amid volatile markets. Watch for AMCs updating schemes by December 23, 2025, potentially favoring larger AUM funds.