SEBI's Changes in Total Expense Ratio (TER)
Understanding the new framework for mutual fund expenses.
The reference is SEBI’s board decision from 17 December 2025, now being incorporated into the SEBI (Mutual Funds) Regulations, 2026 and effective April 1 2026.
📉 1. Expense Ratio (Fee) Structure — What Changed?
➤ New Framework: BER replaces old TER
SEBI has replaced the traditional Total Expense Ratio (TER) with a Base Expense Ratio (BER).
BER reflects only the core AMC fee (management, administration, etc.).
Statutory & regulatory levies (GST, SEBI fees, STT/CTT, stamp duty), brokerage, and regulatory charges will be separately disclosed/charged on actuals and not included in BER.
Hence: TER = BER + Brokerage + Regulatory levies + Statutory levies
This increases transparency so investors can see what they directly pay the fund house vs statutory costs.
📊 2. Revised Base Expense Ratio (BER) Caps by Category
The table below shows how SEBI revised the limits (reduced in most cases) for BER across categories — excluding statutory levies.
🟡 Index Funds & ETFs
| Category | Old Ceiling (incl. levies) | Revised BER |
|---|---|---|
| Index Funds/ETFs | 1.00% | 0.90% |
🟡 Fund of Funds (FoFs)
| FoF Type | Old TER | Revised BER |
|---|---|---|
| FoFs investing in liquid/index/ETF schemes | 1.00% | 0.90% |
| ≥65% equity FoFs | 2.25% | 2.10% |
| Other FoFs | 2.00% | 1.85% |
🟢 Open-Ended Schemes — Equity-Oriented (AUM-based)
Smaller funds pay higher BER; larger funds benefit from tiered caps.
| AUM Size | Old TER | Revised BER |
|---|---|---|
| ≤ ₹500 cr | 2.25% | 2.10% |
| ₹500-750 cr | 2.00% | 1.90% |
| ₹750-2,000 cr | 1.75% | 1.60% |
| ₹2,000-5,000 cr | 1.60% | 1.50% |
| ₹5,000-10,000 cr | 1.50% | 1.40% |
| ₹10k-15k cr | 1.45% | 1.35% |
| ₹15k-20k cr | 1.40% | 1.30% |
| ₹20k-25k cr | 1.35% | 1.25% |
| ₹25k-30k cr | 1.30% | 1.20% |
| ≥ ₹50,000 cr | 1.05% | 0.95% |
🔵 Open-Ended — Other than Equity (Debt & Others)
| AUM Size | Old TER | Revised BER |
|---|---|---|
| ≤ ₹500 cr | 2.00% | 1.85% |
| ₹500-750 cr | 1.75% | 1.65% |
| ₹750-2,000 cr | 1.50% | 1.40% |
| ₹2,000-5,000 cr | 1.35% | 1.25% |
| ₹5,000-10,000 cr | 1.25% | 1.15% |
| ₹10k-15k cr | 1.20% | 1.10% |
| ₹15k-20k cr | 1.15% | 1.05% |
| ₹20k-25k cr | 1.10% | 1.00% |
| ₹25k-30k cr | 1.05% | 0.95% |
| ≥ ₹50,000 cr | 0.80% | 0.70% |
🟣 Closed-Ended Schemes
| Scheme Type | Old TER | Revised BER |
|---|---|---|
| Equity-oriented | 1.25% | 1.00% |
| Other than equity | 1.00% | 0.80% |
(This detailed breakdown comes from SEBI’s new limits approved 17 Dec 2025.)
🔍 3. Other Key Changes in the Circular/Regulations
✔️ Brokerage and Transaction Costs
SEBI rationalised brokerage caps on trades by mutual funds:
- Cash market brokerage cap reduced to 6 bps (from ~8.59 bps effective earlier).
- Derivatives brokerage cap reduced to 2 bps (from ~3.89 bps).
- Statutory levies are excluded from the BER cap and charged separately to investors.
✔️ Performance-Linked Expense Charging (New)
SEBI introduced the possibility for performance-linked base expense ratios, subject to defined conditions and disclosures. This means some schemes may charge fees tied to performance outcomes.
✔️ Governance & Oversight
Expanded roles for trustees and senior management with stricter governance standards for AMCs.
✔️ Enhanced Disclosure & Transparency
Clearer disclosure norms for all cost components (BER, brokerage, statutory/regulatory levies), improving investor understanding of what costs are being paid and why.
📌 What It Means for Investors
- Lower core fee caps across categories should gradually reduce actual costs borne by investors (10–15 bps in many cases).
- Greater transparency with separate line items will help investors compare funds more clearly.
- Statutory levies still apply but are no longer embedded in the fee caps.
- Performance-linked expense charges may align fees with results in some schemes.
Disclaimer: This summary is for educational purposes. Always refer to the official SEBI circular for definitive information.