SEBI’s New Expense Ratio Rules Bring Relief for Investors and Mutual Funds
Lower costs and higher transparency to boost investor confidence
Examples show how retail investors will save more and earn better returns
By Our Business Reporter
New Delhi: December 18, 2025:
The Securities and Exchange Board of India (SEBI) has introduced sweeping reforms in mutual fund regulations, revising the expense ratio framework and capping brokerage charges. These changes, announced in December 2025, are designed to reduce costs for investors, improve transparency, and modernize the mutual fund industry.
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The reforms replace the old Total Expense Ratio (TER) with a new Base Expense Ratio (BER), exclude statutory levies like GST and stamp duty from expense limits, and slash brokerage fees across segments.
Key Changes in the Rules
- Base Expense Ratio (BER): Statutory levies such as GST, stamp duty, SEBI fees, and exchange charges are excluded from the BER, making cost structures clearer.
- Brokerage Caps: Brokerage fees for mutual funds have been cut to 6 basis points (bps) in the cash market (from 12 bps) and 2 bps in derivatives (from 5 bps).
- Exit Load Charges: The additional 5 bps charged over exit load has been scrapped.
- Transparency: Investors will now see a clearer breakdown of costs, reducing hidden charges.
How Investors Will Benefit
1. Retail Equity Fund Investors Save More
Earlier, investors in equity‑oriented mutual funds often paid higher brokerage and statutory charges hidden within the TER. With SEBI’s new rules, these costs are excluded from the BER and capped separately.
- Example: A retail investor putting ₹1 lakh in an equity fund will now save on brokerage costs (cut from 12 bps to 6 bps). Over time, this translates into higher net returns.
2. Index Fund and ETF Investors Gain from Lower Expense Ratios
Index funds and ETFs typically attract cost‑sensitive investors. SEBI’s reforms reduce expense ratios across categories, making passive investing even cheaper.
- Example: An investor in an index fund with a previous expense ratio of 0.5% may now pay closer to 0.3%. Over 10 years, this difference can significantly boost compounded returns.
3. Long‑Term Savers Benefit from Compounding
Lower costs mean more money stays invested, which compounds over time.
- Example: A long‑term SIP investor contributing ₹5,000 monthly for 20 years could save thousands in costs, leading to a larger retirement corpus.
Impact on Mutual Funds and Brokerages
- Mutual Funds: Asset management companies (AMCs) get relief as statutory levies are excluded from BER, reducing compliance complexity.
- Brokerages: Higher brokerage caps in certain segments provide flexibility, while lower investor costs improve trust in the system.
- Market Efficiency: Simplified rules align India’s mutual fund industry with global best practices.
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Expert Reactions
- Telegraph India reported that SEBI’s move enhances transparency and aligns oversight with evolving market practices.
- Livemint highlighted that brokerage costs have been halved, directly benefiting investors.
- Economic Times noted that the reforms simplify operations and reduce costs for both investors and brokers.
Broader Context
These reforms are part of SEBI’s larger effort to modernize India’s capital markets. Alongside changes in stockbroker regulations and IPO disclosures, the expense ratio overhaul reflects SEBI’s commitment to investor protection, cost efficiency, and transparency.
India’s mutual fund industry, with assets under management (AUM) exceeding ₹50 lakh crore, is expected to grow further as lower costs attract more retail investors.
Conclusion
The new SEBI rules on expense ratios and brokerage caps are a win‑win for investors and mutual funds. By lowering costs, improving transparency, and simplifying compliance, SEBI has strengthened investor confidence and made mutual funds more attractive.
For investors, the message is clear: lower charges mean higher returns, especially over the long term. Whether in equity funds, index funds, or SIPs, the benefits of these reforms will be felt across portfolios.
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