Mutual fund expenses under Sebi’s new rules: A guide for investors

Subscribe to enjoy similar stories. MUMBAI: The Securities and Exchange Board of India (Sebi) on Wednesday introduced a series of regulations for mutual funds, with changes to expense structures likely to have the most direct impact on investors. Here’s a closer look at what these rules entail and how they could affect the cost of investing in mutual funds.

At the heart of the reforms is a reworking of the expense ratio framework. Aiming to improve transparency in how expense ratios are charged, Sebi has introduced a new concept called the Base Expense Ratio (BER) and explicitly excluded statutory levies from its scope. Charges such as securities transaction tax (STT), commodity transaction tax (CTT), GST, stamp duty, exchange fees, and Sebi fees will now be levied strictly on actuals and shown separately, rather than being bundled into the headline expense cap.

This makes it easier for investors to see what they pay fund managers for investment management versus statutory charges. As a result, the total cost borne by an investor will now consist of four clearly identified components: the base expense ratio, brokerage, regulatory levies, and statutory levies. Together, these form the Total Expense Ratio (TER).

While this does not automatically translate into a sharp drop in overall costs, it provides a far more transparent structure, allowing investors to understand exactly where their money is going. Sebi has also reduced base expense limits across categories, including equity schemes, debt schemes, index funds, exchange-traded funds (ETFs), and fund-of-funds. Examples include: “This is a good move.