SEBI cuts mutual fund expense ratios: What it means for investors
SEBI cuts mutual fund costs: How the change impacts investor savings.
SEBI has moved to lower mutual fund base expense ratios, making investing more affordable and
transparent for retail investors. While the reduction may appear modest at first, it plays a crucial role
in determining how much of an investor’s money remains invested rather than being eroded by fees.
Over the long term, even small savings on costs can compound into meaningful gains.
Under the new norms approved at SEBI’s board meeting on Wednesday, December 17, 2025, expense
ratios have been cut by up to 15 basis points, with most asset slabs seeing a 10 basis point reduction.
For open-ended equity funds with assets under ₹500 crore, the maximum expense ratio has been
reduced from 2.25 percent to 2.10 percent. Debt funds in the same category will now have a lower cap
of 1.85 percent.
Updated Mutual Fund Expense Ratios
1. Index Funds / Exchange Traded Funds (ETFs)
Current (including statutory levies): 1.00 percent
Revised (excluding statutory levies): 0.90 percent
2. Fund of Funds (FoFs)
Funds investing in liquid schemes / index funds / ETFs
Current (including statutory levies): 1.00 percent
Revised (excluding statutory levies): 0.90 percent
Funds investing 65 percent or more of AUM in equity-oriented schemes
Current (including statutory levies): 2.25 percent
Revised (excluding statutory levies): 2.10 percent
Other FoFs
Current (including statutory levies): 2.00 percent
Revised (excluding statutory levies): 1.85 percent
What Exactly Has Changed
SEBI has also streamlined the way mutual fund costs are disclosed to investors. The Total
Expense Ratio (TER) has now been renamed the Base Expense Ratio (BER).
“Earlier, investors tracked costs through the Total Expense Ratio (TER), which bundled
multiple expense components into a single figure. Shifting to a Base Expense Ratio (BER)
separates core fund expenses from statutory levies, making the cost structure simpler and
easier to track over time,” says Niharika Tripathi, Head of Products and Research at
[Link], a wealth management platform.
The BER will now reflect only the operational costs of running a fund, including fund
management fees, distributor commissions, and registrar and transfer agent (RTA) charges.
Statutory expenses such as GST, stamp duty, Securities Transaction Tax (STT), Commodity
Transaction Tax (CTT), and regulatory or exchange fees will be excluded from the BER and
disclosed separately.
In simple terms, BER shows what the fund house charges, while TER represents the total cost
borne by the investor after adding taxes and statutory levies. The revised expense limits apply
across equity-oriented schemes, debt funds, index funds, ETFs, fund of funds, and closed-
ended schemes.
Why a Small Cut Can Still Matter
So what does this change mean for investors?
SEBI’s decision to lower expense ratios by 10–20 basis points may seem minor, but its impact
compounds steadily over time.
“On the surface, a 10–20 bps cut looks insignificant. But investing is not a sprint; it is a long,
steady journey. Lower costs mean more of your money remains invested and continues to
compound,” explains Col Sanjeev Govila (retd), Certified Financial Planner and CEO of Hum
Fauji Initiatives.
To illustrate, consider a ₹10 lakh lump-sum investment growing at a hypothetical 12 percent
CAGR before expenses. A 20-basis-point reduction in the expense ratio over a 20-year period
can result in nearly ₹2.95 lakh of additional wealth.
As Govila notes, “This is not extra return generated by the market, but money that stays
invested and compounds instead of being deducted as expenses. In effect, it is a direct saving
that translates into higher long-term wealth.”
The Long-Term Effect
Govila explains, “Every rupee saved on fees becomes an extra weapon in the fight against
inflation. What may seem like a modest 20-basis-point reduction actually translates into a 10–
15 percent cut in costs.”
In the short run, these savings may appear negligible. However, over longer holding periods,
they consistently enhance investment outcomes. Over decades, such seemingly small
reductions can add up to a meaningful boost in long-term financial goals.