New Delhi: Mutual Fund investors can now expect better transparency after market regulator Securities Exchange Board of India (SEBI) announced a major overhaul in Mutual fund expenses, the first in two decades. The standout feature here has been the unbundling of the Total Expense Ratio (TER) and a reduction of brokerage charges by 6 basis points (bps) from the current 12.
For investors, this means better transparency, as you now know how much of the expenses go to fund managers, to brokers and the how much tax you pay on your investments.
The TER is now split into 4 components
- Base Expense Ratio (BER)
- Brokerage and Transaction Costs
- Regulatory Levies from SEBI and other exchange fees
- Other tax levies (GST, stamp duty and other taxes)
Now, you can compare funds based on its BER, while most other unavoidable charges remain constant. Earlier, Mutual Funds could camouflage their charges within the bundled Total Expense Ratio, allowing them to charge more to investors through their terms and conditions. These reforms may not result in an immediate drop in your mutual fund charges, but you can expect improved disclosures and empower you to demand better services.
Though the reduction in fee caps may hit the margins of the Asset Management Companies (AMCs), many may pass on the costs to the distributors.
Smaller AMCs may not be happy with this development, as they will have to negotiate for block deals with the brokers. The Association of Mutual Funds of India (AMFI), the body representing AMCs in India, has cried foul of this development, as the proposal for the same was in public domain through a consulting paper released by SEBI in October.
The revised provisions are all set to be implemented by April 1, 2026.
