Market regulator SEBI has approved several changes to mutual fund regulations to make the system more transparent.
These changes mainly focus on the expense ratio framework and brokerage fee limits. The aim is to provide regulatory clarity, reduce unnecessary duplication, and make compliance easier.
SEBI Chairperson Tuhin Kant Pandey said that during the board meeting, it was decided that all statutory charges will be excluded from the expense ratio limit.
These charges include Securities Transaction Tax (STT), Goods and Services Tax (GST), Commodity Transaction Tax (CTT), and stamp duty.
In addition, existing expenses related to brokerage, exchange fees, and regulatory charges will also be excluded from the expense ratio.
New ‘Basic Expense Ratio’ and Impact on Investors
Under the new rules, the expense ratio limit will be renamed as the “Basic Expense Ratio.”
At present, all statutory charges—except GST on management fees—are included within the Total Expense Ratio (TER) limit for mutual fund schemes.
With this change, statutory charges will be kept separate from the expense ratio limit. This means that any future increase or decrease in statutory charges will be passed on directly to investors, instead of being adjusted within the expense ratio.
Reduction in Fees and Performance-Based Charges
SEBI has also decided to remove the additional five basis points (bps) fee that asset management companies (AMCs) were earlier allowed to charge on mutual fund schemes. This step has been taken to reduce costs for unitholders.
To further protect investors and ensure they are not charged more than once, brokerage fees have been reduced.
For cash market transactions, brokerage has been cut from 0.12% to 0.06%, while for derivative transactions, it has been reduced from 0.05% to 0.02%.
Additionally, SEBI has introduced a provision that allows expense ratios to be linked to scheme performance. However, this performance-based expense ratio will be voluntary for AMCs.
