Here’s a closer look at what these rules entail and how they could affect the cost of investing in mutual funds.

What are the changes

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:

• Index funds and ETFs: 0.9% from 1%
• Fund-of-funds largely investing in index funds or ETFs: 0.9% from 1%
• Fund-of-funds with over 65% equity exposure: 2.10% from 2.25%
• Other fund-of-funds: 1.85% from 2%

“This is a good move. It offers some marginal savings for mutual fund investors, as well as improves disclosures and transparency of expenses,” said Muthukrishnan Dhandapani, certified financial planner and a Chennai-based mutual fund distributor.

Similar calibrated reductions have been applied across equity and debt schemes based on their asset size. For equity-oriented schemes specifically:

• Schemes with assets up to ₹500 crore now have a base expense cap of 2.10% (down from 2.25%)
• Large schemes with assets above ₹50,000 crore see the cap fall to 0.95% (from 1.05%)
• Intermediate slabs have graded reductions based on assets under management (AUM)

Though the reductions are incremental, Sebi has calibrated them to broadly offset the exclusion of statutory levies, minimizing disruption to asset management companies’ cost structures while improving clarity for investors.

Broking costs

Brokerage and transaction costs have also been overhauled. Previously, asset management companies (AMCs) could charge brokerage up to 12 basis points in the cash market and 5 basis points (bps) in derivatives, with statutory levies included. After stripping out levies, the effective caps were about 8.6 bps for cash trades and nearly 3.9 bps for derivatives

The regulator has now capped brokerage costs for mutual funds at 6 bps (excluding levies) in the cash market, and at 2 bps in derivatives. It also scrapped the additional 5 bps that could earlier be charged over exit loads—fees levied when investors redeem their investments.

The revised provisions will take effect on 1 April 2026, providing the industry with a three-month transition window.

Beyond costs

Sebi has also simplified compliance requirements: reporting has been streamlined, trustee meeting requirements reduced, and borrowing rules clarified to allow index funds and ETFs to manage execution-related needs more efficiently.

For investors, the immediate effect may not be a visible drop in headline expense ratios, since taxes and levies are still paid separately. But over time, lower base expense caps, tighter brokerage limits, and clearer disclosures should improve cost discipline and reduce hidden charges.

More importantly, investors now get a cleaner picture of what they are paying for—and what they are not—making mutual fund comparisons and investment decisions more informed and meaningful.