SEBI Slashes Mutual Fund Expense Ratios to Lower Investor Costs

On December 17, 2025, the Securities and Exchange Board of India (SEBI) unveiled a major shift in how mutual fund costs are structured and disclosed. This move, a revision of mutual fund expense ratio norms, marks one of the most significant regulatory changes in the Indian mutual fund industry in years. Designed to cut costs for investors and improve clarity around fees, the reform has already set ripples across markets and fund houses alike.

What Exactly Has Changed?

At the heart of SEBI’s latest regulation is a redefinition of the way mutual fund expenses are calculated. Instead of the traditional Total Expense Ratio (TER), SEBI has introduced a new concept called the Base Expense Ratio (BER). Under this framework, statutory and regulatory levies, such as Goods and Services Tax (GST), stamp duty, exchange fees, and SEBI fees, are excluded from the base expense ratio. These charges will still be borne by investors, but they are now disclosed separately from the core management costs. 

Why does this matter? Previously, all expenses, from management fees to taxes, were lumped together in the total expense ratio. This made it difficult for investors to understand what they were really paying fund managers versus what was merely pass-through costs. The new structure brings a much-needed degree of transparency and comparability to mutual fund charges.

Revised Mutual Fund Expense Ratio Details:

Index Funds & Exchange Traded Funds (ETFs)

Fund of Funds (FoFs)

Open-ended Schemes (Based on AUM) - Equity-Oriented Schemes

Open-ended Schemes (Based on AUM) - Other-than Equity-Oriented Schemes

Closed-ended Schemes

Why This Matters for Investors

For long-term mutual fund investors, cost is a silent killer of returns. Expense ratios aren’t flashy like headline NAV returns, but they directly reduce the amount of your money that stays invested. Under the old regime, an investor in an equity fund might pay 2.25% or more per year just in expenses and taxes. These costs compound over years and can dramatically affect final outcomes. 

By segregating statutory levies and lowering the base expense cap, SEBI aims to:

• Make mutual fund costs easier to compare across schemes, allowing investors to make more informed choices.
• Reduce the overall cost burden on retail investors, particularly those investing in index funds or ETFs.
• Encourage greater retail participation in capital markets by making mutual funds more investor-friendly. 

Investors can now see more clearly what they are paying for portfolio management, and what they are paying in taxes or outside levies. This separation is especially helpful for passive investors, who prefer low-cost products like index funds and ETFs. 

What This Means for the Future

SEBI’s reform is about more than just cutting numbers on paper, it’s a step toward simplifying the investor experience in India’s booming mutual fund industry. By making costs more understandable and competitive, the regulator hopes to make mutual funds a more attractive vehicle for both first-time investors and seasoned savers.
The move also aligns India more closely with global practices, where investors increasingly demand transparency and fairness in fees. As the Indian retail investor continues to grow in sophistication, regulatory clarity like this could lead to stronger inflows in long-term equity investing, further deepening the capital markets. 

In Summary

SEBI’s reduction and restructuring of mutual fund expense ratios is a landmark change, one that will likely benefit investors by lowering costs, improving transparency, and boosting confidence in mutual fund investing. While asset managers adjust their product structures and business models to the new norms, investors stand to gain from clearer cost visibility and potentially higher long-term returns.