SEBI Revamps Mutual Fund Fee Structure: Investors to Benefit from Lower Costs

New Delhi: The Securities and Exchange Board of India (SEBI) has approved major changes to the rules governing mutual funds, aiming to reduce investor costs and increase transparency. The overhaul, part of SEBI’s “clean-up drive,” has reduced the regulatory book from 162 pages to 88 pages, simplifying compliance for fund houses.

Key Changes in Expense Ratio and Charges
SEBI has revised the expense ratio framework and brokerage limits for mutual funds. Tuhin Kant Pandey, SEBI Chairman, stated that government taxes like STT (Securities Transaction Tax), GST, CTT, and stamp duty will now be excluded from the expense ratio and treated as a separate Base Expense Ratio. Previously, only GST on management fees was excluded, while other taxes counted toward the limit. This separation ensures clear accounting even if taxes change in the future.

Elimination of Additional Charges
The additional 5 basis points (bps) charge collected by Asset Management Companies (AMCs) since 2012 will now be completely removed. Initially set at 20 bps, it was reduced to 5 bps in 2018 as a temporary measure. SEBI’s decision will lower costs for investors.

Reduction in Brokerage Charges

• Cash market transactions: Brokerage reduced from 12 bps to 6 bps.
• Derivatives: Brokerage cut from 5 bps to 2 bps.

Additionally, SEBI has introduced the option for performance-based fee structures, allowing AMCs to charge fees based on fund performance, subject to the company’s discretion.

Simplified Compliance and Reporting
SEBI has eased several regulatory requirements:

• Fund houses no longer need newspaper advertisements for changes; online communication suffices.
• The number of trustee meetings has been reduced.
• Annual reports can now be sent digitally to investors.

Investor Impact
These changes are expected to reduce costs, increase transparency, and simplify mutual fund operations, benefiting investors across the country. The Indian mutual fund industry, which began in 1963, now manages assets exceeding ₹80 lakh crore.

Summary of Key Changes:

• Extra charge removed: 5 bps charge by AMCs eliminated.
• Lower brokerage: Cash market 12→6 bps, derivatives 5→2 bps.
• Tax separation: STT, GST, and stamp duty now excluded from base expense ratio.