SEBI plans big overhaul in mutual fund rules to cut costs and boost transparency
SEBI has proposed significant reforms to mutual fund cost structures, including steep caps on brokerage fees, clearer TER disclosures separating taxes, optional performance-linked fees, and shifting NFO expenses to AMCs, aiming to boost transparency and investor benefits
Mumbai: The Securities and Exchange Board of India (SEBI) has proposed major changes to the way mutual funds are managed in the country. The market regulator aims to lower brokerage costs, make fee disclosures clearer, and simplify how investors are charged.
In a new consultation paper reviewing the 1996 Mutual Fund Regulations, SEBI has suggested tightening the cost structures for Asset Management Companies (AMCs) so that more benefits reach investors directly.
One of the biggest proposals is a sharp cut in brokerage and transaction costs that mutual funds can link to their schemes.
SEBI has suggested capping brokerage for cash market trades at just 2 basis points (bps), down from the current 12 bps. For derivatives, the cap will be reduced from 5 bps to only 1 bps.
Another major move is the removal of the additional 5 bps expense that AMCs have been allowed to charge on their total assets under management (AUM) since 2018.
To balance this change, SEBI has proposed increasing the base Total Expense Ratio (TER) slabs for open-ended active schemes by 5 bps.
To make expense disclosures more transparent, SEBI has suggested that taxes and government charges like Securities Transaction Tax (STT), Goods and Services Tax (GST), and stamp duty should not be included in the mutual fund expense ratio.
Instead, these will be shown separately and charged directly to investors. This means that the TER will now reflect only what fund managers charge for managing investors’money, while taxes will appear as a separate cost.
SEBI has also proposed introducing an optional performance-linked TER framework. This will allow AMCs to charge higher or lower fees depending on how well their funds perform.
Additionally, the regulator wants all expenses related to New Fund Offers (NFOs) — incurred up to the allotment of units — to be paid by the AMC itself, not the scheme. This move is aimed at ensuring greater cost accountability and protecting investors’ interests.
If implemented, these reforms could make mutual fund investments more transparent, cost-effective, and fair for millions of investors across India, experts said.
