SEBI proposal mutual funds: Lower costs, higher transparency for investors

The Securities and Exchange Board of India (SEBI) has proposed a major overhaul of how mutual fund expenses are structured — a move that could make investing cheaper, more transparent, and more beneficial for retail investors.

In a consultation paper released on Tuesday, SEBI outlined plans to simplify Total Expense Ratio (TER) rules, eliminate extra charges, lower brokerage fees, and exclude government taxes from expense caps. The regulator has invited public feedback until November 17, 2025.

According to SEBI, the goal is to ensure investors directly benefit from the rapid growth of India’s ₹75.6 lakh crore mutual fund industry.

What SEBI Plans to Change

Currently, mutual fund houses charge various fees under the Total Expense Ratio (TER) — covering management, distribution, and other costs. SEBI now aims to streamline this system by:

• Removing the additional 5 basis points (bps) that fund houses could earlier charge to cover distribution expenses.

• Raising the first two slabs of TER by 5 bps to allow flexibility while maintaining lower overall costs.

• Excluding government levies such as STT, GST, CTT, and stamp duty from the TER limit, ensuring transparency in cost structure.

Puneet Singhania, Director at Master Trust Group, welcomed the move, stating, “Lower expenses will directly improve investor returns, enhancing confidence in mutual fund products as long-term wealth creation tools.”

Lower Brokerage and Transaction Costs

SEBI also proposed tightening limits on brokerage and transaction charges — from 12 bps to 2 bps for cash transactions and 5 bps to 1 bps for derivatives. This aims to prevent double-charging investors for trade execution and research.

Shivani Nyati, Head of Wealth at Swastika Investmart, said, “While large AMCs may see pressure on profit margins, this reform aligns India’s mutual fund industry with global best practices and promotes operational transparency.”

Boosting Fairness and Investor Confidence

The new fee structure will make mutual fund costs simpler and more predictable. Analysts expect it to attract first-time investors and strengthen Systematic Investment Plan (SIP) participation.

SEBI also plans to introduce incentives for women, senior citizens, and small investors, offering them better terms similar to special benefits seen in fixed deposits.

If implemented, these proposals will make mutual fund investing more cost-efficient, transparent, and trustworthy — marking a new chapter in India’s retail investment ecosystem.