The Securities and Exchange Board of India (Sebi), has proposed a major change to how mutual fund fees are charged. The plan aims to make the system simpler, more transparent, and cheaper for investors.
The proposals include revising the expense ratio structure, removing extra charges, tightening brokerage limits, and excluding government taxes from the total expense ratio cap.
In its consultation paper released on Tuesday, Sebi said the goal is to ensure that investors benefit more directly from the growing size of India’s Rs 75.6 lakh crore mutual fund industry. The regulator has invited public comments on the proposal until November 17.
At present, mutual fund houses are allowed to charge investors a range of fees and expenses under the Total Expense Ratio (TER), which includes management fees, distribution costs, and other charges. Sebi now wants to simplify this system.
Under the new proposal, Sebi plans to remove the additional 5 basis points (bps) that fund houses were earlier allowed to charge across schemes. This extra charge was introduced in 2012 when the exit load system was modified and was meant to cover distribution costs. The regulator has said this was a temporary measure and is no longer needed.
To reduce the impact of removing this charge, Sebi has suggested increasing the first two slabs of the expense ratio structure by 5 bps. This adjustment will allow mutual fund houses some flexibility while still lowering overall costs for investors.
Sebi also plans to exclude statutory levies such as Securities Transaction Tax (STT), Goods and Services Tax (GST), Commodity Transaction Tax (CTT), and stamp duty from the expense ratio cap. This means that any changes in government taxes will be directly passed on to investors instead of being included in fund expenses.
The regulator has also proposed to tighten limits on brokerage and transaction charges that mutual funds can pass on to investors. Currently, mutual funds can charge up to 12 bps for cash transactions and 5 bps for derivatives trades. Sebi has suggested reducing these limits to 2 bps and 1 bps, respectively.
This proposal comes after concerns that investors were effectively paying twice for research and trade execution — once through management fees and again through brokerage costs. The lower limits are aimed at making mutual fund investing fairer and more cost-efficient for retail investors.
By restructuring the mutual fund fee system, Sebi aims to make costs more transparent and reduce confusion for retail investors. The simplified structure is also expected to make it easier for new investors to understand how much they are paying and for what services.
Industry experts believe this could help improve investor confidence and attract more first-time participants into India’s mutual fund market, especially as small investors continue to show strong interest through systematic investment plans (SIPs).
Commenting on Sebi’s broader efforts to improve market access, Vishal Goenka, Co-Founder of IndiaBonds.com, said, “Sebi’s consultation paper is very welcome and a further step in encouraging participation of retail investors in the country’s fast-growing bond markets.”
Goenka pointed out that public debt issuances have fallen sharply from Rs 19,168 crore in FY 2023–24 to Rs 8,149 crore in FY 2024–25, according to Sebi’s annual report.
Meanwhile, private placement of corporate bonds stood at Rs 4,66,356 crore in the first half of FY 2025–26, compared to public issuances of just Rs 4,998 crore between April and August 2025. This shows that public debt issues make up just about 1% of the total corporate bond market.
The paper also suggests introducing incentives for certain investor categories such as senior citizens, women, and retail investors. These incentives would be offered at the issuer’s discretion and disclosed in offer documents. Goenka noted that similar benefits exist in other instruments such as fixed deposits, where some groups receive higher interest rates.
He added that secondary market activity in corporate bonds is also picking up pace, with 11.14 lakh trades recorded in the first half of FY 2025–26, compared to 11.91 lakh in the entire FY 2024–25. According to him, the proposed changes could encourage greater retail participation in public debt issues and give companies more diversified funding options.
If implemented, Sebi’s proposed changes will make mutual fund costs easier to understand and possibly cheaper for investors. Lower brokerage fees and the removal of overlapping charges could improve returns, especially for long-term investors. Excluding government taxes from the expense ratio will also make cost comparisons between schemes more accurate.
Overall, the proposals mark another step towards a more transparent and investor-friendly mutual fund framework, aimed at improving confidence in India’s fast-growing investment market.
(Disclaimer: The views, opinions, recommendations, and suggestions expressed by experts/brokerages in this article are their own and do not reflect the views of the India Today Group. It is advisable to consult a qualified broker or financial advisor before making any actual investment or trading choices.)