SEBI Rolled Out A Fresh Framework for Mutual Funds Fees

Everybody invests in mutual funds. It’s the best investment for long term financial goals. Now, the SEBI has made some modifications to the fee structure of mutual funds, according to the latest reports.

In an effort to increase fee transparency and enhance investor protections, India’s market regulator, the Securities and Exchange Board of India (SEBI), released a new framework on Wednesday governing how mutual fund expenses are assessed and disclosed. The SEBI has given its approval to a revamp of mutual fund regulations that seeks to lower costs, increase transparency and lessen the financial burden on investors.

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What are the modifications? 

The board approved revisions to the Total Expense Ratio (TER) framework, such as the removal of statutory levies like the securities transaction tax (STT), GST, stamp duty and commodities transaction tax from TER computations. In the past, the expense limitations for mutual funds included a combination of legal and regulatory expenses. For investors, this frequently obscures the actual expense of managing funds. To increase clarity, the Securities and Exchange Board of India has now divided these components.

Following a thorough evaluation, the SEBI board authorized the SEBI (Mutual Funds) Regulations, 2026, which replaced the 1996 framework.

Over and above the base expenditure ratio (BER), statutory levies, that are, STT or CTT, GST, stamp duty, SEBI, exchange fees, etc. are to be levied on actuals. The extra 5 bps cost allowance associated with exit loads has been eliminated. It also authorized performance related expenditure structures for particular programs and stricter restrictions on brokerage and distribution commissions.

Regulatory Updates to the Base Expense Ratio

The 0.9% restriction will apply to fund of funds (FoF) that mostly invest in index funds or ETFs. The maximum for fund of funds with over 65% exposure to equity oriented schemes will decrease from 2.25% to 2.10%.

Additionally, some fund of funds will lower their maximum from 2% to 1.85%.

There are now tighter restrictions on closed ended plans as well. The base cost ratio for equity oriented close ended funds will now be limited to 1%, as opposed to 1.25% in the past. Whereas, the limit on non equity closed end funds will be decreased from 1% to 0.8%.