India's market regulator revises mutual fund fees. Top 6 things investors must know

Dubai: India’s markets regulator has approved a sweeping overhaul of mutual fund regulations, rewriting a framework that has governed the industry for nearly three decades. The changes, cleared by the Securities and Exchange Board of India at its December 17 meeting, aim to lower costs for investors, improve transparency around fees and simplify compliance for fund houses without diluting investor protection.

The revised rules will come into force as the SEBI Mutual Funds Regulations 2026, replacing a complex structure that had grown layered over time through repeated amendments. The regulator said the new framework retains core safeguards while making the rules easier to read, apply and enforce.

For investors, the overhaul reshapes how fund expenses are calculated, disclosed and capped. Here are the key takeaways.

At the heart of the reform is a revamp of the expense ratio framework. SEBI has redefined the Total Expense Ratio by breaking it into clearer components, allowing investors to see exactly what they are paying for.

The Base Expense Ratio will now exclude statutory and regulatory levies such as GST, stamp duty, securities transaction tax, exchange fees and SEBI charges. These will instead be charged on actuals, over and above brokerage limits. The Total Expense Ratio will now be the sum of the base expense ratio, brokerage costs and statutory levies.

This change is designed to remove ambiguity around fund costs and curb the bundling of expenses into a single opaque number.

SEBI has reduced the base expense ratio limits across the equity, debt, index funds, exchange-traded funds, and fund-of-funds categories. For large equity-oriented schemes with assets above ₹50,000 crore, the base expense ratio cap will fall to 0.95% from 1.05% earlier. For non-equity schemes of the same size, the cap drops to 0.70% from 0.80%.

Index funds and ETFs will see their cap reduced to 0.90% from 1.00%, while fund-of-funds investing in equity-oriented schemes will now be capped at 2.10%.

SEBI said the revised thresholds were raised from its October consultation paper to limit the impact on fund houses, excluding statutory levies.

The regulator has also rationalised brokerage limits paid by mutual funds. For equity cash market transactions, the brokerage cap net of statutory levies has been reduced to 6 basis points from an earlier effective level of 8.59 basis points. For derivatives, the cap has been cut to 2 basis points.

Fund managers currently pay up to 12 basis points in brokerage on cash trades. SEBI said the changes strike a balance between cost efficiency and fund managers' ability to execute investment strategies.

Under the new structure, SEBI estimates that average mutual fund charges will fall by 10 to 15 basis points.

SEBI has removed the additional 5 basis point expense allowance that was earlier permitted for schemes with exit loads as a transitional measure. The regulator said the allowance had served its purpose and would no longer be required under the revised framework.

The move tightens cost discipline and prevents layering of charges that dilute investor returns over time.

The overhaul also reduces the operational burden on asset managers and trustees. SEBI has cut the number of mandatory trustee meetings, removed duplicative filings and streamlined reporting requirements.

Physical submission of advertisements to SEBI will be discontinued, with digital disclosures and automated monitoring replacing manual processes. Portfolio disclosures will also be rationalised, with half-yearly filings removed.

The regulator said the restructuring has reduced the size of the regulations by 44%, cutting word count by more than half and eliminating most provisos and overlapping clauses.

Alongside mutual fund reforms, SEBI approved amendments to its public issue rules to address delays caused by pledged pre IPO shares. Depositories will now automatically mark such shares as non-transferable for the lock-in period, even if pledges are invoked or released.

SEBI also approved measures to boost retail participation in corporate debt markets by allowing issuers to offer incentives, such as additional interest or discounts, to women, senior citizens, and retail investors.

“Incentives are first steps and the debt market requires a number of steps to bring fixed income market to retail investors,” SEBI chairman Tuhin Kanta Pandey said at the post-meeting press conference.

For retail investors, the overhaul promises lower costs, clearer disclosures and fewer hidden charges. For fund houses, it simplifies compliance while tightening accountability on fees. The reforms signal SEBI’s intent to modernise India’s investment framework without compromising on governance, at a time when household participation in markets continues to rise.

- With inputs from agencies.