India's capital markets regulator Securities and Exchange Board of India (SEBI) has announced a significant restructuring of how mutual fund expenses are calculated and charged to investors. On 17 December 2025, SEBI introduced sweeping changes aimed at reducing costs for investors while improving transparency in fee disclosures.
The regulator has fundamentally redefined how fund expenses are presented to investors. The traditional total expense ratio (TER) has been reconceptualised as the base expense ratio (BER), which represents a cleaner measure of actual fund management costs. This new framework separates operational fees from government-imposed charges, allowing investors to distinguish between what fund houses charge and what regulatory authorities mandate.
Under the new structure, statutory charges, including securities transaction tax, commodity transaction tax, goods and services tax, stamp duty and various regulatory fees, will no longer be included in the base calculation. Instead, these government-imposed levies will be charged separately based on the actual amounts incurred, which will appear above the permitted brokerage thresholds.
The complete cost to investors will now be presented as a sum of four distinct components: the base expense ratio, brokerage charges, regulatory levies and statutory levies. This breakdown offers unprecedented clarity into the various cost layers that affect mutual fund returns.
Revised Expense Caps across Fund Categories
The regulator has implemented reductions across virtually all fund categories. For passive investment vehicles such as index funds and exchange-traded funds (ETFs), the ceiling has been lowered from 1% to 0.9%, excluding statutory charges.
Fund-of-funds structures have received differentiated treatment based on their underlying investments. Those investing in liquid schemes, index funds, or ETFs will now be subject to a 0.9% cap. Fund of funds that allocate at least 65% of assets to equity-oriented schemes face a 2.10% limit, while other fund of funds variants are capped at 1.85%.
Closed-ended schemes have seen substantial reductions. Equity-oriented closed-ended schemes now face a 1% ceiling, down from 1.25%, while their non-equity counterparts have been reduced to 0.8% from the previous 1% limit.
Tiered Structure for Open-ended Schemes
For actively managed open-ended schemes, the regulator has maintained a tiered approach that varies according to asset size, although with reduced percentages across all slabs. The philosophy behind this graduated structure is that larger funds benefit from economies of scale and should pass those savings to investors.
The reductions typically range between 10bps (basis points) and 15bps across various categories, with the majority of asset slabs seeing a 10bps decrease.
Market observers note that this restructuring will make cost comparisons between funds more straightforward. Investors will now be able to clearly differentiate between charges that fund houses control versus those imposed by regulatory requirements and taxation policies.
The changes also bring Indian ETF expense disclosure practices more in line with international standards, potentially making the domestic market more attractive to global investors familiar with similar transparency frameworks.
Fund houses will need to adapt their operational procedures and disclosure documents to comply with the new framework. The regulator is expected to release detailed implementation guidelines specifying transition timelines and operational requirements.
Beyond changes to the expense ratio, the regulator made several other significant decisions. Asset management companies will no longer be permitted to charge 5bps in lieu of exit loads, representing another cost reduction for investors.
The requirement to publish scheme change notifications in newspapers has been eliminated, though such information must still be disclosed on company websites. This modernisation acknowledges the shift toward digital communication while maintaining transparency requirements.
The regulator has also discontinued the real estate fund category, noting that no fund house has launched products in this segment. This housekeeping measure removes unused regulatory frameworks.
Asset management companies will now be permitted to distribute annual reports and abridged summaries in digital format exclusively, reducing printing and distribution costs while maintaining investor access to important information.
Finally, the regulator has mandated a reorganisation of roles and responsibilities between asset management companies and trustees, though specific details of this restructuring will be outlined in forthcoming circulars.
The expense ratio reforms represent the most comprehensive overhaul of mutual fund cost structures in recent memory. By separating fund management fees from statutory charges and reducing expense caps across categories, the regulator aims to make mutual fund investing more attractive to retail participants while maintaining the quality of fund management services.
The actual impact on investor returns will become clearer once fund houses publish their revised total expense ratios incorporating both the new base expense ratios and the separately disclosed statutory charges. Industry participants anticipate that these changes will be implemented in the coming months, following the release of detailed operational guidelines.
