On December 17, 2025, the Securities and Exchange Board of India (SEBI) approved significant changes to mutual fund expense ratio norms, aimed at reducing investor costs, improving transparency, and boosting retail participation in mutual funds. The key change involves redefining the Total Expense Ratio (TER) and introducing a new concept called the Base Expense Ratio (BER).

What is Changing?

The overhaul of mutual fund expense rules by SEBI includes several key changes:

• Base Expense Ratio (BER): The TER will now be known as the Base Expense Ratio (BER). The BER represents the core fee charged by a mutual fund scheme to manage the fund, excluding statutory and regulatory levies.
• Components of TER: The TER will now comprise the BER, brokerage, regulatory levies, and statutory levies. Statutory and regulatory levies such as the Goods and Services Tax (GST), stamp duty, SEBI fees, and exchange charges will no longer be included in the BER limits. Instead, these will be charged separately on actuals, above the BER and brokerage.
• Brokerage Limits: SEBI has also rationalized brokerage limits. For cash market transactions, the brokerage cap has been reduced to 6 basis points, excluding levies. Previously, the effective brokerage component was about 8.59 basis points after levies were stripped out. For derivatives, the brokerage cap has been cut to 2 basis points from about 3.89 basis points earlier.
• Expense Allowance: The additional 5 basis points expense allowance previously permitted for schemes charging exit loads has been removed.

Revised BER Limits Across Categories

SEBI has announced revised BER limits across various categories of mutual funds:

• Index Funds/ETFs: Reduced to 0.9% (excluding levies) from 1% (including levies).
• Fund of Funds (FoFs):
  • FoFs investing in liquid schemes, index funds, or ETFs: Reduced to 0.9% from 1%.
  • FoFs investing 65% or more of their assets under management (AUM) in equity-oriented schemes: Reduced to 2.10% from 2.25%.
  • Other FoFs: Reduced to 1.85% from 2%.
• Close-Ended Schemes:
  • Equity-oriented close-ended funds: Capped at 1%, compared to 1.25% earlier.
  • Non-equity close-ended schemes: Capped at 0.8%, down from 1%.

Impact and Rationale

These revisions are expected to reduce costs for investors and enhance transparency in mutual fund investments. By unbundling the expense ratio, investors can now see exactly what they are paying for. The regulator has clarified that the revised limits were adjusted upwards from earlier consultation proposals to ensure that asset management companies (AMCs) are not unduly strained. The net impact is intended to broadly reflect the removal of statutory levies from the BER rather than an aggressive fee cut.

SEBI aims to make fees clearer and strengthen safeguards for investors. The changes are also expected to bring greater transparency, which is a key catalyst for increased participation in mutual funds.

Effective Date

All the revised provisions will come into effect from the next financial year, starting April 1, 2026.