New Delhi, Dec 17 (IANS) The Securities and Exchange Board of India (SEBI) on Wednesday approved a comprehensive overhaul of mutual fund regulations to improve cost transparency and reduce the expense burden on investors.

According to the report, the changes were cleared by the SEBI board and will be implemented through the new SEBI (Mutual Funds) Regulations, 2026, replacing the existing 1996 framework after a detailed review.

At the core of the reform is a revamp of the Total Expense Ratio (TER) framework.

The SEBI has approved the exclusion of statutory and regulatory levies — including securities and commodities transaction tax (STT/CTT), GST, stamp duty, SEBI fees and exchange charges — from TER calculations. These levies will now be charged on actuals, over and above the Base Expense Ratio (BER), giving investors a clearer picture of fund management costs.

Under the revised structure, TER will comprise three components: base expense ratio, brokerage costs, and statutory or regulatory levies. The SEBI has also removed the additional 5 basis points (bps) expense allowance that was earlier linked to exit loads.

The regulator has tightened brokerage-related norms while revising earlier proposals. For equity cash market transactions, mutual funds will be allowed to pay brokerage of up to 6 bps, higher than the previously proposed 2 bps but significantly lower than the current levels of up to 12 bps. For derivative transactions undertaken by mutual funds, brokerage caps have been revised to 2 bps, excluding statutory levies.

The SEBI has also approved tighter caps on distribution commissions and allowed performance-linked expense structures for certain mutual fund schemes, subject to regulatory conditions.

In addition, the board approved reductions in base expense ratio limits for several categories. The BER cap for index funds and exchange-traded funds (ETFs) has been lowered to 0.9 per cent from 1.0 per cent. A similar reduction applies to liquid-scheme-based fund of funds. For close-ended equity schemes, the base expense ratio limit has been cut to 1 per cent from 1.25 per cent.

The SEBI said the revised regulations aim to align mutual fund expenses more closely with actual costs while strengthening transparency and investor protection across the industry.

–IANS

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