SEBI Mutual Fund Regulation Changes: What Has Changed and Why It Matters

India’s market regulator, the Securities and Exchange Board of India (SEBI), has announced
one of the biggest overhauls of the mutual fund (MF) fee structure in recent years. The changes aim to lower costs, improve transparency, and protect investors.

Key Mutual Fund Fee Changes Approved by SEBI

• Brokerage Cap Reduced:
  Mutual funds can now pay a maximum of 6 basis points (bps) to brokers, plus statutory charges. This works out to about 9 bps total, compared to nearly 12 bps earlier.
• Base Expense Ratio (BER) Introduced:
  SEBI has introduced a new Base Expense Ratio with clearly defined limits. This represents the core management cost of a mutual fund.
• Total Expense Ratio (TER) to Continue:
  The Total Expense Ratio will remain in place and will not have a hard cap, but funds must now fully disclose TER details.
• Clear Cost Breakdown in TER:
  TER disclosures must separately show all costs, including:
  • Taxes
  • GST
  • Statutory levies
  • Brokerage and other charges
• BER Limits Cut by ~15 bps:
  The allowed base expense limits have been reduced by around 15 basis points.
  The impact is limited, as earlier commissions already included GST, which is now shown separately.
• 5 bps Compensator Charge Removed:
  A special 5 bps charge introduced earlier to offset exit-load changes has been
  permanently removed.

SEBI Cuts Fees Paid to Brokers and Fund Managers

SEBI has also reduced the fees paid by mutual funds to stock brokers, especially on cash market trades.

• Broker Fee on Cash Trades: Capped at 6 bps (excluding statutory levies), down from 8.59 bps earlier.
• ETF Management Fees Reduced: Management fees for exchange-traded funds (ETFs) have been cut to 0.9% from 1%.

SEBI had earlier proposed an even lower broker fee of 2 bps, but the final decision settled at a higher level to balance industry concerns.

Other Important Decisions Taken by SEBI

• Companies issuing public debt will be allowed to offer incentives to selected investors to increase participation.
• Credit rating agencies will be permitted to rate financial instruments that fall under other regulators.
• New asset disclosure norms for SEBI officials have been deferred for further discussion.

What This Means for Investors

These changes are expected to:

• Reduce hidden costs in mutual funds
• Improve transparency around fees and charges
• Make ETFs and mutual funds more cost-efficient
• Align the industry more closely with investor interests

Overall, SEBI’s latest reforms mark a strong step toward a lower-cost, more transparent mutual fund ecosystem in India.