SEBI’s mutual fund overhaul reccos: Lower brokerage, greater transparency, better disclosures

In a sweeping reform that could save millions of Indian mutual fund investors crores in hidden costs, the Securities and Exchange Board of India (SEBI) proposed slashing brokerage charges by a staggering 83 per cent for equity trades and 80 per cent for derivative transactions.

The market regulator unveiled a comprehensive overhaul of 29-year-old mutual fund regulations earlier this week, targeting practices that have long made investors “pay twice for the same services”

The document is now online on the SEBI website and is titled the Consultation Paper on Comprehensive Review of SEBI (Mutual Funds) Regulations, 1996.

Brokerage bombshell

Currently, mutual fund schemes can charge investors up to 12 basis points (0.12 per cent) of the trade value as brokerage for buying or selling stocks in the cash market.

Under SEBI’s proposal, this limit will plummet to just 2bps, a dramatic slide that addresses a long-standing concern about bundled services.

According to the watchdog organisation, arbitrage funds so far paid brokerage ranging from just 1.18bps to 1.34bps, and other equity schemes paid between 5bps to 12bps during 2023-24, and the regulatory limit remained much higher.

“The high brokerage charges can be attributed to services other than execution, which may include research,” SEBI noted in its consultation paper, adding that “investors may often end up paying twice for the research” since investment management already includes research as an inherent function.

Simply put, research was usually packaged into brokerage, but investors, in some cases, paid extra to access them.

For derivative transactions used by many fund managers to hedge risks, the brokerage limit will drop from 5bps to just 1bps. Actual costs related to executing transactions, such as exchange fees and regulatory charges, can still be recovered separately, along with all statutory levies like STT, CTT, GST, and stamp duty, SEBI noted.

GST hikes vs returns

SEBI also proposed excluding all statutory levies—Securities Transaction Tax, Goods and Services Tax, Commodity Transaction Tax, and Stamp Duty—from the expense ratio limits that cap how much fund houses can charge you annually.

This means that if the government increases GST rates in the future, your mutual fund returns won’t take a hit within the existing expense caps.​

But this also opens a backdoor for fund houses to profit, SEBI noted. To avoid this, the watchdog also suggested cutting the base expense ratio limits by the amount currently spent on GST. The regulator explained, “The expense ratio limits are proposed to be exclusive of statutory levy, so that any change in statutory levy in future is passed on to the investors”.

Exit load mystery solved

For years, mutual fund investors have been paying an additional charge of 5bps (and 20bps until 2018) that fund houses could levy on top of the exit load. This was the penalty you pay when withdrawing money from a scheme before a specified period.

However, this extra charge was originally introduced in 2012 as temporary compensation when exit loads were mandated to be credited back to schemes rather than pocketed by fund companies.

And now, SEBI is looking to scrap this additional 5bps charge entirely, calling it “transitory in nature”. Check out our explainer on this.

Digital first

SEBI also mused on eliminating the age-old requirement for mutual funds to publish certain important disclosures, such as changes in fund management or fundamental attributes, in newspapers.

“The requirement of advertisement in newspaper was introduced in 1996. With development of technology and improved digital modes of communications, the disclosure to investors has been digitally enabled through email/SMS and also by posting the relevant information on AMCs’ websites,” the paper noted.

This means faster communication with lower costs, though investors will need to stay vigilant about checking their emails and fund house websites. Annual reports and their abridged summaries will also be sent digitally, according to SEBI.

Transparency and disclosures

SEBI introduced a new comprehensive definition of “Total Expense Ratio” in the consultation paper, which included not just the standard expense ratio but also brokerage, exchange and regulatory fees, plus all statutory levies.

Once this comes to pass, fund houses would have to disclose this Total Expense Ratio “with all relevant heads”, giving investors a complete picture of what they’re really paying for fund management.​

Additionally, all expenses related to launching New Fund Offers (NFOs) until the date of allotment must be borne by the AMC, trustees, or sponsor, and cannot be passed on to investors in the scheme. When schemes are wound up, investment advisory fees and distribution commissions cannot be classified as “winding up costs” that eat into your remaining corpus.

What could go wrong?

Most proposals from SEBI favour investors, but there is also some fine print. From pages 9 to 11 of the consultation paper, SEBI also noted that it was considering allowing AMCs to provide investment management services to non-broad-based funds (read: funds for wealthy clients) through the same organisation, subject to “Chinese walls” and direct CEO oversight.

In an ideal world, this could create conflicts of interest, with good fund managers potentially being diverted to serve ultra-rich clients instead of retail mutual fund investors.

SEBI has also suggested provisions to introduce performance-based differential expense ratios. These are voluntary provisions where fund houses could charge fees based on how well they perform.

This sounds good for now, but like always, the devil will be in the details of the framework. And that is yet to be finalised.

The consultation paper, released on October 28, 2025, is open for public comments until November 17, 2025.