Markets regulator Sebi has notified a comprehensive overhaul of mutual fund regulations, introducing a Base Expense Ratio (BER) and separating fund management fees from statutory charges like GST and STT for greater transparency.
At the same time, the regulator has also lowered expense ratio caps across most fund categories.
The new regulations would come into force with effect from April 1, 2026, Sebi said in a notification.
The move comes after the Sebi board approved a proposal in this regard in December.
Under the new framework, the regulator has tweaked the expense structures for the MF industry by introducing the concept of a base expense ratio (BER), which excludes statutory levies such as the security transaction tax and GST, a departure from the current system, which is focused on the total expense ratio (TER).
The concept of TER stays, and shall be the sum of the BER, brokerage, regulatory levies and statutory levies.
Sebi said that all expenses of mutual fund schemes should be clearly identified and should be paid from the scheme. The expenses should be subject to the base expense limits, brokerage limits, transaction cost and statutory levy permissible under these regulations.
“Any expenditure in excess of the base limits specified in these regulations shall be borne by the asset management company (AMC) or the trustees or sponsors. If any expense of the scheme is borne by the asset management company or by the trustee or sponsors, the same shall be done only after the investment and advisory fees charged to the scheme, if any, are fully reversed,” Sebi said.
Sebi has rationalised brokerage limits by cutting the cap from 0.12 per cent to 0.06 per cent, and from 0.05 per cent to 0.02 per cent for derivative transactions. It also ended an additional 0.05 per cent exit load measure first introduced in 2018.
Also, Sebi has digitised investor communications, such as annual reports, and eased compliance by reducing the frequency of mandatory trustee meetings, eliminating newspaper advertisements for scheme changes, replacing them with online disclosures, and removing duplicative reporting.
