SEBI Proposes Major Overhaul of Mutual Fund Rules; Seeks Feedback by November 17

New Delhi, October 29: The Securities and Exchange Board of India (SEBI) has announced a new proposal to change regulations related to mutual funds in India. The new proposal aims to simplify the current compliance related to mutual funds. Furthermore, it also aims to improve transparency and define a better way to calculate Total Expense Ratio (TER).

In its consultation paper, SEBI included many changes, including new limits on brokerage charges. It also suggested the removal of certain additional expenses that were previously permitted to asset management companies (AMCs).

Key Proposals By SEBI on Expense Ratio

SEBI has proposed the removal of the additional 5 basis points (bps) that mutual fund houses were allowed to charge across their mutual fund schemes. This additional charge was introduced in 2012 at 20 bps, but was later reduced to the current 5 bps in 2018. It was intended to offset the impact of crediting exit loads back to mutual fund schemes.

However, SEBI has proposed a new 5 bps upward revision in the first two slabs of the expense ratio to ensure there is a balance if the additional 5 bps is removed. The new 5 bps upward revision is for open-ended active schemes.

Key Proposals By SEBI For Brokerage Limits

SEBI has proposed to reduce brokerage limits to ensure investors are charged fairly and only once. As per the reduction proposal, brokerage limits are to be reduced from 12 bps to 2 bps for cash market transactions, and from 5 bps to 1 bps for derivatives.

Statutory Levies Excluded From TER Limits

SEBI has also clarified that statutory levies such as STT, GST, CTT, and stamp duty will be excluded from TER limits. Currently, only GST on management fees is charged separately, but other levies are included within TER. Furthermore, SEBI has proposed a voluntary performance-linked TER mechanism. This will enable Asset Management Companies (AMCs) to balance their expenses with the scheme’s performance.

For all the proposals SEBI mentioned, it has invited public feedback until November 17, 2025.

REF:https://www.sebi.gov.in/sebi_data/attachdocs/oct-2025/1761660314120.pdf

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