Mumbai: The Securities and Exchange Board of India (SEBI) has unveiled a major overhaul of mutual fund regulations, aiming to boost transparency, reduce hidden costs, and improve investor protections.

While these changes may put short-term pressure on asset management companies (AMCs), the long-term benefits for investors are significant.

From TER to BER: Greater Transparency in Fund Fees

One of the key changes is the shift from the Total Expense Ratio (TER) to the Base Expense Ratio (BER). Statutory levies such as GST, stamp duty, and Securities Transaction Tax (STT) will no longer be bundled within the expense ratio. Instead, these will be charged separately, giving investors a clearer picture of the actual fund management costs.

SEBI has also reduced base expense limits across fund categories by up to 15 basis points (0.15%). For example:

  • Index Funds & ETFs: Capped at 0.90%, down from 1%
  • Equity Close-Ended Funds: Capped at 1%, down from 1.25%

These changes ensure that investors are not unknowingly paying extra through hidden costs.

Lower Brokerage Fees for Mutual Funds

Brokerage payments to stockbrokers, which previously included bundled services like research, have also been capped:

  • Cash Market: Reduced from 12 bps to 6 bps
  • Derivatives: Reduced from 5 bps to 2 bps

This prevents unnecessary leakage of investor money and ensures fund assets are managed more efficiently.

Investor-Friendly Governance Measures

SEBI’s reforms strengthen alignment between fund managers and investors:

  • “Skin in the Game”: Senior fund managers must invest a portion of their own salaries into the schemes they manage.
  • Nomination Flexibility: Investors can now name up to 10 nominees per holding.
  • Faster Fund Deployment: Money raised during a New Fund Offer (NFO) must be invested within 30 business days. Delays allow investors an exit window without penalties.
  • Exit Load Removal: The 0.05% temporary exit load has been permanently scrapped, reducing hidden costs.

MF-Lite: Simplified Rules for Passive Funds

For index funds and ETFs, SEBI has introduced MF-Lite, a lighter regulatory framework that reduces operational and compliance burdens. This is expected to lower costs further for passive investors while simplifying fund management.

Clearer Risk and Naming Standards

SEBI has standardized fund names and risk measures to improve investor clarity:

  • Funds must now maintain at least 75% equity allocation for equity-oriented schemes.
  • Stress-testing of portfolios is mandatory, with public disclosure of how funds would perform under market shocks.
  • Ambiguous fund names like “Low Duration” are being replaced with clear, term-based names, e.g., “3-4 Year Term Fund.”

Short-Term AMC Pressure vs Long-Term Investor Gains

While AMCs may see short-term profit pressures due to these reforms, they retain flexibility to restructure operations or share some costs with distributors. Overall, the reforms promote greater transparency, tighter cost control, and better comparability across funds, strengthening investor trust and supporting informed decision-making.

What This Means for Investors

Investors can now expect:

  • Clearer mutual fund statements showing separate BER and statutory levies
  • Lower hidden fees and brokerage costs
  • Aligned interests with fund managers
  • Easier comparison of schemes and informed investment choices

These reforms mark a significant step toward a more transparent and investor-friendly mutual fund ecosystem in India, encouraging greater participation in market-linked instruments.