SEBI has taken a big decision in the interest of mutual fund investors. SEBI’s board on December 17 approved proposals for changes in the Total Expense Ratio (TER) framework. This will reduce the burden of expenses related to fund management on investors of mutual funds. SEBI had earlier presented a draft of changes in the rules.
Changes in the rules of brokerage and distribution commission
SEBI’s new rule states that STT, GST, stamp duty and commodities transaction tax will no longer be included in the calculation of TER. The regulator has also tightened the rules for brokerage and distribution commission. It has allowed performance based expense structures for certain schemes.
SEBI (Mutual Funds) Regulations, 2026 approved
SEBI (Mutual Funds) Regulations, 2026 were approved in the SEBI Board meeting held on December 17. This will replace the 1996 law. The new law has been approved after extensive consideration. Now levies like STT/CTT, GST, stamp duty, SEBI and exchange fees will be collected separately from the Base Expense Ratio (BER).
Changes in brokerage fees for mutual funds
Additional 5 bps expense associated with exit load has been removed. It has amended its earlier proposal to set a limit on brokerage fees to be paid by mutual funds. This limit for equity cash transactions has been increased to 6 basis points from the earlier 2 basis points.
TER will include these levies including BER
Currently, fund managers pay fees of up to 12 basis points for buying and selling shares in their portfolio. SEBI has increased the brokerage rate for derivative mutual funds deals from 1 basis points to 2 basis points (excluding levies). Now the Total Expense Ratio (TER) will include BER, brokerage and statutory/regulatory levies.
Reduction in base expense ratio for index funds, ETFs
SEBI has reduced the base expense ratio for index funds, ETFs from 1.0 per cent to 0.9 per cent. The base expense ratio of liquid scheme based fund of funds has been reduced to 0.9 percent. The base expense ratio for closed-ended equity schemes has been reduced to 1 per cent instead of 1.25 per cent.