Sebi proposes major revamp of mutual fund fee rules to reduce costs for investors

Capital markets regulator Sebi has proposed a comprehensive overhaul of the country’s mutual fund fee structure, including key changes to how fund houses charge investors, as part of its effort to simplify rules, improve transparency, and reduce costs for unit holders.

In a consultation paper released on Tuesday, Sebi said the proposals aim to make mutual fund fees clearer and fairer, while ensuring that investors benefit more directly from economies of scale in the Rs 75.6 lakh crore industry.

The regulator has invited public comments until November 17.


Under the proposed framework, Sebi plans to remove the additional 5 basis points (bps) that fund houses were earlier allowed to charge across schemes.

The regulator said this charge was "transitory in nature" and was originally meant to cover distribution expenses when the exit load system was changed in 2012.

To cushion fund houses from the impact of this removal, Sebi has proposed to revise upward the first two slabs of expense ratios by 5 bps in the new structure.

Sebi also wants to exclude statutory levies such as securities transaction tax (STT), GST, commodity transaction tax (CTT) and stamp duty from the overall expense ratio cap.

This means any future changes in such government taxes will be passed directly to investors, instead of being absorbed within the existing expense ratio limit.

Further, the consultation paper proposes tighter limits on brokerage and transaction charges that can be passed on to investors. Currently, mutual funds can charge up to 12 bps for cash transactions and 5 bps for derivatives trades.

Sebi, in the paper, proposed to cut these to 2 bps and 1 bps, respectively, citing concerns that investors were effectively paying twice for research, once through management fees and again as part of brokerage costs.