SEBI Proposes Major Changes to Mutual Fund Fees

Introduction

When it comes to investing, small costs can add up like silent termites in your wealth. SEBI, India’s market regulator, is pushing for a future where mutual fund investors get absolute clarity on what they pay and why. In its sweeping October/November 2025 consultation paper, SEBI is proposing a major overhaul of mutual fund fee structures to shield investors from hidden costs and reward long-term performance, not just assets under management.

What’s Changing for Investors?

• Unbundled Fees & Lower Costs: The Total Expense Ratio (TER) will reflect only true fund operating costs. Extra “bundled” charges like the additional 5 basis points have been removed—AMCs (fund companies) can no longer pass these hidden costs to investors.
• Tighter Brokerage Limits: The cap on brokerage paid for stock market trades has been slashed from 12 bps (cash) to 2 bps, and from 5 bps (derivatives) to just 1 bps—AMCs must squeeze operations rather than squeeze you.
• Statutory Levies Excluded: STT, GST, stamp duty, and regulatory fees will now be kept outside the TER cap, making expense ratios easier to compare across funds and future government changes more transparent to investors.
• Performance Fees Option: For the first time, funds will be allowed to voluntarily link part of their fee to performance; funds that beat their benchmarks may charge a bit more, while underperformers must charge less—aligning incentives for both AMCs and investors.
• Upfront NFO Costs on AMC: Launch expenses for new funds will no longer be deducted from unitholders prior to allotment; AMCs or sponsors must bear these costs to ensure investors start off clean.

Why It Matters

SEBI’s overhaul makes mutual fund investing friendlier for real people—not just experts. Lower costs and transparent rules mean more of your returns stay yours, and fund houses have to prove their value every year. Choosing a fund gets easier and fairer, especially for first-time investors and those building retirement wealth.

Final Thoughts :-

SEBI is making mutual fund investing clearer, leaner, and fairer for every Indian saver. Whether you’re picking your first fund or optimizing your portfolio, these rule changes could have a real, human impact on your journey to financial health.

FAQs

Q: Will my mutual fund investing costs go down?
A: Yes, if these proposals are adopted: extra fees are going away, brokerage caps are falling, and overall TERs (expense ratios) are set to be reduced.

Q: What is TER and how does this change affect me?
A: TER is the main running cost of a fund. After SEBI’s changes, it will include only real running expenses—statutory and transaction levies (like STT, GST) won’t be counted, so you’ll see the actual management cost separately.

Q: What are performance-linked fees?
A: AMCs can (voluntarily) charge a bit more if the fund outperforms its benchmark; charges drop for weaker funds. This ensures you pay more for better service—less for laggards.

 Q: What’s the deadline for feedback and rollout?
A: SEBI has opened feedback until November 17, 2025. Actual rule changes will follow after regulatory review.

Q: Does this mean all funds will switch to performance fees?
A: No, it’s optional—not every AMC or fund will change immediately. Check the offer documents to see the fee structure for your scheme.