SEBI Revises Expense Ratio, Brokerage Caps For Mutual Funds

The Securities and Exchange Board of India (SEBI) in its board meeting on Wednesday approved significant changes to the calculation of the total expense ratio for mutual funds and rationalised brokerage limits for market transactions.

Under the new framework, TER will now comprise the base expense ratio, brokerage, regulatory levies and statutory levies. SEBI also announced revised BER limits across categories:

• Index Funds/ETFs: Reduced from 1% (including levies) to 0.9% (excluding levies).

• Fund of Funds (FoFs) that invest in liquid schemes or index funds or ETFs will see the cap slip from 1% to 0.9%.

• Funds investing more than or equal to 65% of the AUM in equity-oriented schemes will see the cap move from 2.25% to 2.1%.

• Other FoFs will see the cap change from 2% to 1.85%.

Additionally, the 5 bps currently permitted to be charged to schemes with exit loads as a transitory measure, has now been removed according to the release.

The regulator emphasised that these changes aim to enhance transparency and reduce costs for investors. The expense ratio will now exclude all statutory levies, such as STT, GST and stamp duty.

In addition, SEBI rationalised brokerage caps for both cash and derivative market transactions. For cash market transactions, the existing cap of 12 basis points, which included statutory levies, has been revised to 6 bps, exclusive of levies, down from 8.59 bps net of levies.

It was in October that SEBI had proposed these series of changes to the way mutual funds are managed, introducing measures to cut brokerage costs, enhance transparency on fees and simplify how investors are charged.

In the consultation paper reviewing the 1996 Mutual Fund Regulations, SEBI had outlined the plan to tighten cost structures for asset management companies with the aim of passing on benefits to investors.