How Sebi’s mutual fund fee overhaul will make life harder for small distributors

A regulatory overhaul of how commissions are paid will shake up the segment estimated to account for about half of India’s ₹81 trillion in mutual fund assets: small distributors. Industry experts say they will be forced to partner with larger peers to survive, driving consolidation.The Securities and Exchange Board of India (Sebi) in December approved a revised framework for total expense ratio (TER) limits.

It has two components: the base expense ratio (BER) and all statutory and regulatory levies, such as goods and services tax (GST), securities transaction tax, stamp duty, and regulatory fees, which will be charged separately over and above the base cost.For equity-oriented schemes, BER will now range from 2.10% for assets up to ₹500 crore to 0.95% for assets more than ₹50,000 crore. It comes into effect from April 1.With GST moving outside BER, compliance under the indirect tax regime will increase.

Small distributors not registered for GST will be forced to partner with platforms that can help fulfil compliance requirements.The move marks a fundamental change for the industry as about 90% of the distributors, who contribute about 40-50% of the mutual fund industry's assets under management (AUM) worth ₹81 trillion, are likely to be non-GST compliant, according to Parth Parekh, head of investor relations and senior research analyst at Prudent Corporate Advisory Services Ltd, which handles assets of ₹1.3 trillion.There were about 178,000 mutual fund distributors in India as of fiscal 2025, according to the Association of Mutual Funds in India (Amfi). The top three distributors by commissions and expenses paid were NJ India Invest, State Bank of India and HDFC Bank.“A majority of the industry is not GST registered as