SEBI has reduced the fee paid by domestic mutual funds to brokerages, while while also slashing the basic management charge in one of the most sweeping changes to its mutual fund regulations.
The payment to stock brokers on cash trades has been capped at 6 basis points, down from 8.59 basis points, according to a statement released after SEBI’s board meeting on Wednesday. The stock market regulator had earlier proposed a fee of 2 basis points on the fee paid by asset managers.
One basis point is one-hundredth of a percentage point.
SEBI’s new mutual fund regulations may incentivise a new generation of investors to move from traditional savings instruments into market-linked products. Only 10% of Indians had exposure to stocks, mutual funds or bonds, according to a survey by the Securities and Exchange Board of India.
Against that backdrop, here’s a look at what SEBI’s new mutual fund regulations mean for you, the investor, and someone who wants to start investing. This “modern rulebook” is designed to reflect the current digital era of investing while making the cost of mutual funds more transparent.
1. The cost revolution: “BER” instead of “TER”
The biggest change is how you will see fees. SEBI is moving from the Total Expense Ratio (TER) to a Base Expense Ratio (BER).
- What’s out: Statutory levies like GST, stamp duty, and STT (Securities Transaction Tax) will no longer be bundled inside the expense ratio limit.
- What’s in: These taxes will now be charged separately on actuals.
To ensure this doesn’t lead to higher costs for you, SEBI has reduced the base expense limits across categories by up to 15 basis points (0.15%). For example:
- Index Funds & ETFs: Capped at 0.90% (down from 1%).
- Equity Close-Ended Funds: Capped at 1% (down from 1.25%).
2. Slashed brokerage fees
Mutual funds pay stockbrokers to buy and sell shares for the portfolio. SEBI noticed that some funds were overpaying, essentially using your money to pay for “bundled services” like research.
- Cash Market: Brokerage cap reduced from 12 bps to 6 bps.
- Derivatives: Brokerage cap reduced from 5 bps to 2 bps.
This prevents hidden costs and ensures your money stays in the fund rather than leaking out in excessive trading fees.
3. Investor-centric governance
- Removal of the “Extra 5 BPS”: A temporary charge of 0.05% that funds were allowed to levy for exit loads has been permanently scrapped.
- Skin in the game: Senior fund employees are now required to invest a portion of their own salary into the schemes they manage, aligning their interests directly with yours.
- Nomination flexibility: You can now name up to 10 nominees per holding, which is a major win for estate planning.
- Faster deployment: Funds collected during a New Fund Offer (NFO) must be invested within 30 business days. If they delay, you get an exit window without any penalty.
4. Simplified ‘MF-Lite’ framework
For passive investors—those who invest in index funds or exchange-traded funds—SEBI has introduced MF-Lite. This “lightweight” regulatory regime reduces the compliance burden for companies that only offer passive funds. In theory, this should lower the operational costs for these funds, eventually leading to even lower fees for you.
5. Clearer naming and risk rules
- No More Confusion: Vague terms like “Low Duration” are being replaced with “Term-Based” names (for example, “3-4 Year Term Fund”) so you know exactly how long your money is being committed.
- Equity Mandate: Equity funds must now maintain a minimum of 75% in equity (up from 65%).
- Stress Testing: Funds are now mandated to perform and publicly report stress tests, showing how the portfolio would behave in a market crash.
What this means for you
Your mutual fund statements will look different soon—you will see the “Base Fee” and the “Tax” separately. While the headline fee might look lower, the total cost should stay roughly the same or drop slightly due to the tighter brokerage and exit load rules.