Mutual Fund Fees Revamp: GST, SEBI Charges to Be Billed Separately – What Investors Stand to Gain

New Framework for Mutual Fund Expenses
The Securities and Exchange Board of India (SEBI) has announced a significant change in the way mutual fund expenses are calculated. Effective from 17 December, the expense ratio framework has been revised to give investors a clearer picture of the actual costs they incur.

According to reports from The Economic Times, the traditional expense ratio will now be referred to as the Base Expense Ratio (BER). SEBI has clarified that certain taxes and charges will no longer be included in this limit. These include Securities Transaction Tax (STT), Commodity Transaction Tax (CTT), GST, stamp duty, SEBI fees, and exchange charges. These will now be billed separately based on actual expenses. The Total Expense Ratio (TER) will now be calculated as: BER + brokerage + applicable government taxes and fees.

Impact on Investors
While the presentation of costs has changed, experts say this is unlikely to significantly affect investment decisions. Long-term investors typically focus on fund performance and risk rather than minor fee differences. A reduction of 0.05% to 0.10% in reported costs is not expected to alter investment choices.

Potential Savings
According to Dhirendra Kumar, CEO of Value Research, the actual savings for investors will be modest. Displaying taxes separately may make expenses appear lower on the surface, but overall savings are limited. Real relief comes from two changes: the removal of an extra 0.05% exit load expense and a reduction in brokerage limits. Together, these could result in actual savings of approximately 0.06% to 0.08% for investors.

Tracking Fund Expenses
Investors are advised to track both BER and TER, as they are interrelated. Looking at only one metric could be misleading. Kumar notes that these changes are unlikely to materially affect rates for active or passive (index) funds. However, SEBI has given less focus to direct plans under this revision.