Every few years, SEBI shakes the mutual fund industry with new reforms. But this time, the tremors are likely to put money back into investors’ pockets.
The regulator has proposed sweeping changes to how mutual fund expenses are calculated and charged. While these are clearly beneficial, they also highlight something investors often forget—regulation can reduce costs, but it cannot replace vigilance.

This article breaks down what SEBI is planning, why it matters, how it impacts your money, and the crucial steps you must take now.

🔹 Key Takeaways at a Glance

• Outdated 5 bps exit-load-based charge to be removed

• All taxes (STT, CTT, stamp duty) to be excluded from TER

• Brokerage fee caps significantly slashed

• Result: more transparency, lower investor costs

• But investor vigilance remains critical

1. The Cost Problem SEBI Wants to Fix

Mutual funds charge investors a variety of costs—management fees, brokerage, marketing, admin charges and more. While expense ratios provide a broad view, several hidden or unclear expense components have quietly stayed under the surface.

SEBI’s proposals directly target these grey areas and aim to simplify the expense structure while preventing double-charging practices.

2. Clearing Out Old & Unnecessary Charges

One of the simplest but long-overdue proposals is the removal of the 5 basis-point charge linked to exit loads, introduced in 2012 on a temporary basis.
For years, this charge overstayed its purpose. Eliminating it cleans up an outdated rule that no longer serves investors.

3. Moving All Government Levies Outside the TER

Currently, only GST on management fees is kept outside the TER. Other statutory levies—STT, CTT and stamp duty—are included inside the TER, making expense ratios less transparent.

SEBI now proposes a clean rule:

All government taxes should be excluded from TER.

Why this matters to you:

• If taxes change, TER shouldn't silently adjust.

• Investors should clearly see what the fund house is charging vs. what the government imposes.

• Eliminates opacity, increases comparability across funds.

This is a big leap toward true transparency.

4. The Most Impactful Change: Sharply Lower Brokerage Costs

The highlight of the consultation paper is the dramatic cut in brokerage limits:

Why the need for this change?
SEBI found that while arbitrage funds paid very low brokerage (0.010–0.015%), other equity funds were paying much higher rates—often because brokerage costs were bundled with research and advisory services.

But here’s the catch:
Funds already charge management fees for research.
So bundled brokerage meant investors were paying twice for the same expertise.

SEBI’s move directly prevents this duplication.

5. A Simple Example of Why Costs Matter

Suppose you invest ₹5,00,000 each in two identical mutual funds for 20 years:

• Fund A TER: 1.00%

• Fund B TER: 1.50%

• Both earn an identical 12% return

The fund with the higher expense ratio can leave you with ₹1.5–2 lakh less over 20 years.
This difference comes purely from additional expenses eating into compounding.

You can’t control the market. You can’t control the fund manager. But you can control what you pay.

6. What Investors Should Do Now

Regulations create a fair playing field—but they don’t make your decisions.

Here’s what you should start doing immediately:

✔ 1. Compare Expense Ratios in Each Category

Don’t compare a midcap fund’s TER with a largecap fund. Compare apples to apples.

✔ 2. Consider Shifting to Direct Plans

If you are capable of choosing and managing your own funds, direct plans save you 0.5%–1% annually.

✔ 3. Review Your Funds Annually

TERs can change—especially if a fund’s AUM fluctuates.

✔ 4. Avoid High-Churn Strategies Without Reason

Funds with excessive trading often incur higher internal costs. Make sure their strategy justifies it.

✔ 5. Understand What You Are Paying For

Higher expenses must come with genuine value—proven performance consistency, strong risk management, or a differentiated strategy.

7. SEBI’s Reform Helps—But Only If You’re Paying Attention

The regulator is tightening rules, closing loopholes and ensuring more transparency.
This benefits everyone—but it benefits informed investors the most.

If investors continue to choose funds solely based on past returns or star ratings, lower TERs won’t save them from poor choices.

SEBI can regulate expenses. Only you can regulate your decisions.

Conclusion: Lower Costs Are Good, But Awareness Is Better

SEBI’s proposed framework is a step toward cleaner, simpler, more investor-friendly mutual fund pricing.
But no regulation can replace the discipline of an investor who actively tracks expenses and chooses wisely.

Transparency is improving. Costs are falling.
The question now is—will investors finally pay attention to what truly matters?