During its Board Meeting on 17 December 2025, the Securities and Exchange Board of India (SEBI) revised the expense ratio framework of mutual funds.
As per the new measures, the base expense ratio of mutual funds will now exclude statutory and regulatory levies, such as securities transaction tax, GST, stamp duty, SEBI fees, and exchange fees.
It will now only include expenses directly related to managing a scheme, such as fund management fees, distributor fees, and registrar and transfer agent (RTA) charges.
Accordingly, the total expense ratio will now be a sum of the base expense ratio, brokerage, and regulatory and statutory levies.
In essence, it will help investors distinguish between the actual cost of fund management from taxes and transaction charges, ensuring better transparency.
Here are the revised base expense ratio limits for various mutual fund categories:
1) Index Funds/ETFs:
| Category | Current limit | Revised limit |
| Index Funds / ETFs | 1.00% | 0.90% |
Source: sebi.gov.in
2) Fund of Funds (FoFs):
| Category | Current limit | Revised 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% |
Source: sebi.gov.in
3) Open-ended equity and non-equity schemes:
| AUM slab (in Rs crore) | Equity-oriented schemes | Non-equity-oriented schemes | ||
| Current limit | Revised limit | Current limit | Revised limit | |
| Up to Rs 500 | 2.25% | 2.10% | 2.00% | 1.85% |
| Rs 500-750 | 2.00% | 1.90% | 1.75% | 1.65% |
| Rs 750-2,000 | 1.75% | 1.60% | 1.50% | 1.40% |
| Rs 2,000-5,000 | 1.60% | 1.50% | 1.35% | 1.25% |
| Rs 5,000-10,000 | 1.50% | 1.40% | 1.25% | 1.15% |
| Rs 10,000-15,000 | 1.45% | 1.35% | 1.20% | 1.10% |
| Rs 15,000-20,000 | 1.40% | 1.30% | 1.15% | 1.05% |
| Rs 20,000-25,000 | 1.35% | 1.25% | 1.10% | 1.00% |
| Rs 25,000-30,000 | 1.30% | 1.20% | 1.05% | 0.95% |
| Rs 30,000-35,000 | 1.25% | 1.15% | 1.00% | 0.90% |
| Rs 35,000-40,000 | 1.20% | 1.10% | 0.95% | 0.85% |
| Rs 40,000-45,000 | 1.15% | 1.05% | 0.90% | 0.80% |
| Rs 45,000-50,000 | 1.10% | 1.00% | 0.85% | 0.75% |
| Greater than Rs 50,000 | 1.05% | 0.95% | 0.80% | 0.70% |
Source: sebi.gov.in
4) Close-ended schemes:
| Category | Current limit | Revised limit |
| Equity-oriented | 1.25% | 1.00% |
| Non-equity | 1.00% | 0.80% |
Source: sebi.gov.in
What do the revised limits mean for investors?
SEBI’s move will likely lower the cost of investing for investors. While the difference may seem marginal, it could have a significant impact in overall wealth creation in the long run.
For instance, a 20-bps reduction in expense ratio on a lumpsum investment of Rs 10 lakh, assuming a CAGR of 12% (before expenses) and an expense fee of 1.5% can translate into a benefit of about Rs 50,000 over a 10-year period and about Rs 2.7 lakh over a 20-year period.
Should investors consider switching to mutual funds with low expense ratio?
A low expense ratio does not necessarily mean that the fund would be a good fit for your portfolio. In other words, your investment decisions should not be solely based on the expense ratio.
While you need to be conscious of the expense ratio so that the cost of investing is low, you also need to evaluate a host of other factors.
Among them are the returns of the scheme, risk ratios, the portfolio characteristics (top 10 stocks, top 5 sectors, portfolio turnover, etc.), the credentials of the fund management team, the efficiency with which the fund manages its AUM, and the investment process & systems followed at the fund house.
A mutual fund scheme should be able to justify the expense ratio levied with an appealing performance track record.
And lastly, it is important to invest in mutual funds thoughtfully, considering your personal risk profile, your broader investments, financial goals you’re addressing, and the time in hand to achieve those goals.
Simply switching funds just for a marginally lower expense ratio can be counterproductive, particularly if the new fund shows persistent underperformance compared to the benchmark and its peers.
So, while a higher expense ratio can eat into your gains and affect the overall returns, its impact is often smaller than the aforementioned factors. Instead, an expense ratio can be used when you need to decide between two schemes with similar performance metrics and portfolio quality.
Conclusion
SEBI’s revision of expense ratio for mutual funds aims to improve transparency in the cost structure and thereby aid investor protection.
The lower expense ratio can result in higher overall returns over the long run. But while a lower expense ratio is a positive factor for investors, it cannot be seen as a sole parameter for decision making.
Ideally, investors should opt for mutual funds that display consistent growth across various market conditions while maintaining a reasonable level of risk.
Ultimately, it is the fund’s risk-adjusted performance and the quality of its management that often outweigh a low expense ratio.
Happy investing.
Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here…
The website managers, its employee(s), and contributors/writers/authors of articles have or may have an outstanding buy or sell position or holding in the securities, options on securities or other related investments of issuers and/or companies discussed therein. The content of the articles and the interpretation of data are solely the personal views of the contributors/ writers/authors. Investors must make their own investment decisions based on their specific objectives, resources and only after consulting such independent advisors as may be necessary