The Securities and Exchange Board of India (SEBI) has approved a sweeping change in the way mutual fund expenses are charged and disclosed, a move that is expected to make investing more transparent and investor-friendly.
The decision was taken at SEBI’s board meeting held on December 17, 2025, as part of a comprehensive review of the SEBI (Mutual Funds) Regulations, 1996, which will now be replaced by the SEBI (Mutual Funds) Regulations, 2026.
For years, mutual fund expense ratios included not just fund management costs but also statutory charges such as taxes and transaction levies. This often made it difficult for investors to understand how much they were actually paying to the fund house for managing their money. SEBI’s new framework aims to fix this long-standing issue.
Clear separation between fees and taxes
Under the revised rules, SEBI has introduced the concept of a Base Expense Ratio (BER). The BER will now cover only the core cost of running a mutual fund scheme, excluding statutory and regulatory levies.
Charges such as Securities Transaction Tax (STT), Commodity Transaction Tax (CTT), GST, stamp duty, SEBI fees and exchange fees will be charged separately on actuals. The Total Expense Ratio (TER) will therefore be the sum of the base expense ratio, brokerage costs and applicable statutory levies
This change allows investors to clearly see where their money is going and prevents taxes from being bundled into fund management fees.
Revised expense limits: Category-wise tables
1. Index Funds and ETFs
| Category | Earlier limit | New BER limit |
| Index Funds / ETFs | 1.00% | 0.90% |
2. Fund of Funds (FoFs)
| FoF Category | Earlier limit | New BER limit |
| Investing in liquid funds / index funds / ETFs | 1.00% | 0.90% |
| Investing >65% in equity schemes | 2.25% | 2.10% |
| Other FoFs | 2.00% | 1.85% |
3. Open-ended equity-oriented schemes
| AUM slab (₹ crore) | Earlier | New BER |
| Up to 500 | 2.25% | 2.10% |
| 750 – 2,000 | 1.75% | 1.60% |
| 2,000 – 5,000 | 1.60% | 1.50% |
| 10,000 – 15,000 | 1.45% | 1.35% |
| Above 50,000 | 1.05% | 0.95% |
(Intermediate slabs have also been reduced proportionately)
4. Open-ended non-equity schemes (debt, hybrid, others)
| AUM slab (₹ crore) | Earlier | New BER |
| Up to 500 | 2.00% | 1.85% |
| 750 – 2,000 | 1.50% | 1.40% |
| 2,000 – 5,000 | 1.35% | 1.25% |
| 10,000 – 15,000 | 1.20% | 1.10% |
| Above 50,000 | 0.80% | 0.70% |
5. Close-ended schemes
| Scheme type | Earlier limit | New BER |
| Equity-oriented | 1.25% | 1.00% |
| Non-equity | 1.00% | 0.80% |
Brokerage limits tightened
Apart from fund management fees, SEBI has also tightened brokerage limits to reduce trading costs borne by schemes.
For cash market transactions, brokerage has been capped at 6 basis points, excluding statutory levies, down from an effective level of 8.59 basis points earlier. For derivative transactions, the brokerage cap has been reduced to 2 basis points from nearly 3.9 basis points earlier.
Extra expense allowance removed
In another investor-friendly move, SEBI has removed the additional 5 basis points expense allowance that was earlier permitted for schemes charging exit loads. This extra margin, which was introduced as a temporary measure, will no longer be available under the new framework.
Why this matters for investors
SEBI’s overhaul of the expense ratio framework is aimed squarely at improving cost transparency and investor protection. By separating statutory charges from fund management fees and lowering base expense limits, the regulator wants investors to make clearer comparisons across schemes and understand the true cost of investing.
While statutory levies will continue to apply, the new structure ensures that investors can now clearly distinguish between what they pay for fund management and what they pay as unavoidable taxes and transaction charges.