Sebi reduces the expense ratio of mutual fund AMCs. What does it mean for the Indian stock market? Explained
India’s capital market regulator, the Securities and Exchange Board of India (Sebi), has reduced the expense ratio—the annual fee that mutual fund asset management companies (AMCs) charge investors to manage their money. The move is aimed at simplifying how expenses are charged by fund houses, while improving clarity and strengthening investor interests.
As Mint reported earlier, Sebi on Wednesday decided to trim brokerage costs that mutual funds can charge investors to 6 basis points (bps) from the current 12 bps in the cash market. In the derivatives segment, brokerage limits have been reduced to 2 bps from 5 bps. The regulator has also scrapped the additional 5 bps charged over the exit load, the fee levied when investors redeem their investments.
All these revised provisions will come into effect from the next financial year, starting 1 April 2026.
What does Sebi’s move mean for the Indian stock market, investors?
In simple terms, lower expense ratios make investing in mutual funds cheaper for investors and improve the prospects for long-term wealth creation, according to experts. The changes are also expected to bring greater transparency, which is a key catalyst for increased participation in mutual funds, they said.
Sebi’s move could marginally increase retail liquidity in the markets, and it is reasonable to expect some boost to mutual fund investments as a result of these reforms. However, the changes are unlikely to have a major impact on overall market sentiment.
“It is a marginal positive for the market. Sebi’s announcements are positive developments, but the main concern for the market is the FII outflow,” said VK Vijayakumar, chief investment strategist, Geojit Investments.
At this juncture, the dominant concern for Indian equity markets remains the sustained outflow of foreign institutional investors (FIIs). In the previous session, FIIs bought Indian equities worth ₹1,171.71 crore in the cash segment. Yet, on a broader basis, they have been net sellers since July. In December so far, FIIs have offloaded Indian equities worth ₹22,284 crore in the cash segment.
G Chokkalingam, founder and head of research at Equinomics Research Private Limited, also believes that the move will not be a major trigger for the market.
“The move is unlikely to have a major impact on market sentiment. Sebi’s move is aimed at reducing FIIs’ dominance in the domestic market,” said Chokkalingam.
“Sebi wants to reduce the cost of investing through mutual funds so that mutual funds can reach rural and semi-urban areas to reduce the dependence on FIIs. They also want to mobilize more household income to the capital market,” said Chokkalingam, adding that domestic participation is becoming increasingly dominant, and Sebi is keen to minimize the impact of FII outflows on the market and their influence on price movements.
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Disclaimer: This story is for educational purposes only. The views and recommendations expressed are those of individual analysts or broking firms, not Mint. We advise investors to consult with certified experts before making any investment decisions, as market conditions can change rapidly and circumstances may vary.