SEBI revamps mutual fund rules: What it means for investors

New Delhi: Market regulator SEBI has approved a sweeping revamp of mutual fund rules aimed at improving cost transparency and easing the expense burden on investors, a move that will reshape how fund costs are disclosed and charged.

Cleared by the SEBI board on Wednesday, the changes will be implemented through the SEBI (Mutual Funds) Regulations, 2026, replacing the existing 1996 framework after a comprehensive review of the industry.

What changes in expense calculation?

At the heart of the reform is a major overhaul of the Total Expense Ratio (TER) framework. The SEBI has approved the exclusion of statutory and regulatory levies – including securities and commodities transaction tax (STT/CTT), GST, stamp duty, SEBI fees and exchange charges – from TER calculations. These levies will now be charged on actuals, over and above the Base Expense Ratio (BER), giving investors a clearer picture of fund management costs.

Under the revised structure, TER will now comprise three components: the base expense ratio, brokerage costs, and statutory or regulatory levies. SEBI has also scrapped the additional 5 basis points (bps) expense allowance earlier linked to exit loads.

How are brokerage and commissions affected?

SEBI has tightened brokerage-related norms while revising earlier proposals. For equity cash market transactions, mutual funds will now be allowed to pay brokerage of up to 6 bps, higher than the earlier proposed 2 bps but sharply lower than the current ceiling of up to 12 bps.

For derivative transactions, brokerage caps have been set at 2 bps, excluding statutory levies. The regulator has also approved tighter caps on distribution commissions and allowed performance-linked expense structures for select mutual fund schemes, subject to regulatory conditions.

Which schemes get lower expense caps?

The board has approved reductions in base expense ratio (BER) limits across several categories. The BER cap for index funds and exchange-traded funds (ETFs) has been lowered to 0.9 per cent from 1.0 per cent. A similar cut applies to liquid-scheme-based fund of funds.

For close-ended equity schemes, the base expense ratio limit has been reduced to 1 per cent from 1.25 per cent.

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