SEBI Proposes Regulatory Changes to Mutual Funds: A Catalyst for Greater Clarity and Transparency

Strategic Insights -

The Securities and Exchange Board of India (SEBI) has proposed key changes to the expense ratio charged by mutual funds, including the removal of statutory levies like STT, GST, and other charges from the Total Expense Ratio (TER) limits. This move aims to provide greater clarity and transparency for investors. The new proposal also includes a provision for optional performance-based differential TER and removes the expense related to exit load. These changes are expected to simplify and rationalize costs for unitholders.

Key Takeaways:

  • SEBI proposes to exclude statutory levies like STT, GST, CTT, and Stamp duty from the expense ratio limits, alongside present permissible expenses for brokerage, exchange, and regulatory fees.
  • A new provision for optional performance-based differential TER has been introduced, which will be voluntary for Asset Management Companies (AMCs).
  • The proposed regulation excludes the GST on management fees from the TER limit, allowing it to be charged above the TER limit.
  • The expense ratio limits should be exclusive of statutory levy, ensuring that any changes in statutory levy are passed on to investors.
  • The proposed regulation is expected to halve the size of mutual fund regulation and make the system simple and easy to understand.
  • Exit load-related 5 bps expense has been removed to rationalize costs for unitholders.
  • The first two slabs of the expense ratio for open-ended active schemes have been revised upward by 5 bps to reduce the impact of the proposed change on AMCs.
  • Brokerage caps have been reduced to 2 bps for the cash market and 1 bp for derivatives.

Statistics:

  • 5 bps expense related to exit load has been removed from the draft MF Regulations to rationalize costs for unitholders.
  • The brokerage cap has been revised from 12 bps to 2 bps for cash market transactions and 5 bps to 1 bp for derivative transactions.
  • The expense ratio limits are expected to be halved if the proposed regulations are cleared in their current form.
  • The proposed regulation aims to bring clarity and transparency in the expense structure of mutual fund schemes.

Sources:

  • SEBI (Securities and Exchange Board of India) - SEBI Proposes Regulatory Changes To Mutual Funds (consultation paper)
  • Unnamed person consulted before the making of the proposed regulations (quoted in the consultation paper)
  • SEBI (Securities and Exchange Board of India) - SEBI Proposes Regulatory Changes To Mutual Funds (copyright 2025 Armoks Interactive, distributed by Contify.com)