The Securities and Exchange Board of India (SEBI) has proposed a major overhaul in the mutual fund fee structure for 2025 to make the system more transparent, investor-friendly, and cost-efficient. The proposed changes aim to reduce unnecessary charges, simplify expense disclosures, and ensure that investors get fair value for the fees they pay.
These reforms are a part of SEBI’s ongoing efforts to strengthen investor protection and enhance the long-term sustainability of India’s mutual fund ecosystem.
SEBI’s Proposal for Changes in Mutual Fund Fee Structure
Here are the most significant changes proposed by SEBI:
- Reduction in Total Expense Ratio (TER): SEBI plans to cut the TER for open-ended equity mutual funds by around 15 basis points, which will directly reduce investor costs.
- Exclusion of Statutory Levies from TER: Taxes and statutory charges like GST, STT, and stamp duty will be kept outside the TER cap, ensuring clearer cost separation.
- Removal of Additional Expense Provision: The extra 5 basis point charge previously allowed to Asset Management Companies (AMCs) may soon be removed to minimize investor burden.
- Lower Brokerage and Transaction Costs: The proposal includes a sharp reduction in brokerage costs — from 12 basis points to 2 for cash market trades, and from 5 to 1 for derivatives.
- Performance-Linked Fees: SEBI may allow AMCs to charge higher fees for funds that consistently outperform benchmarks, adding a performance-based pricing model with clear disclosure rules.
Why These Changes Matter
These reforms are designed to benefit retail investors by lowering hidden costs and improving transparency. With a simpler, more uniform fee structure, it will be easier for investors to compare mutual funds and understand where their money goes.
For fund houses, this means a move toward efficiency and accountability, while ensuring investor interests remain the top priority.
Impact on Investors
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Lower Investment Costs: Reduced expense ratios will directly increase net returns for investors over time.
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Simplified Comparison: Standardized fee structures will make comparing mutual funds more straightforward.
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Transparency in Charges: By separating taxes from fund management costs, SEBI ensures full clarity on what investors are paying for.
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Encouragement of Performance: AMCs that deliver consistent results can charge slightly higher fees, motivating better fund management.
What Investors Should Do
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Review Your Fund Portfolio: Check your fund’s current TER and compare it with new limits once implemented.
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Be Aware of Performance-Based Fees: Understand the criteria before investing in funds that adopt this model.
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Stay Updated: These changes are still under consultation, expected to be finalized in late 2025.
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Focus on Long-Term Gains: Even small reductions in fees can have a big compounding impact on your investment returns.
The SEBI proposal for a revised mutual fund fee structure marks a major step toward building a more transparent and investor-centric market. By trimming unnecessary costs and linking fees to performance, SEBI aims to make mutual fund investing fairer, simpler, and more rewarding for millions of retail investors across India.
