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Sebi’s proposal to cut AMC brokerage fees may reduce AMC and broker revenues but could benefit investors with lower TERs.
Sebi proposes to reduce mutual fund brokerage charges.
Sebi’s proposal to reduce brokerage and transaction cost for mutual fund has received a mixed reaction across the industry. Institutional brokerage companies may see a hit in revenue if the new proposal comes into effect.
According to Sebi’s proposal in the Consultation Paper on Comprehensive Review of SEBI (Mutual Funds) Regulations, 1996, charges of AMCs to brokerage will be cut from 12 bps to 2bps for cash market and 5 bps to 1 bps for derivatives. As of now, AMCs can charge brokerage up to 0.12% (12 bps) for equity and 0.05% (5 bps) for derivatives. Anything above that must be counted inside the TER limit.
The regulator has proposed a new definition and disclosure of TER, which clearly includes expense ratio (within prescribed limit), brokerage, exchange and regulatory fees, and statutory levies.
TER is the total annual cost charged to investors in a mutual fund scheme. It includes management fees, operational expenses, marketing, registrar fees, and more — expressed as a percentage of the scheme’s AUM (Assets Under Management).
Deepak Shenoy, CEO Capitalmind India, in the X post has cautioned that the pain is likely to be borne mostly by the brokerages who currently service mutual funds, given a highly competitive market.
“Brokerage limits are proposed to be slashed from 12/5 bps to 2/1 bps – and the reduction in revenue is likely to hit institutional broker revenue in the future if this goes through,” he adds.
Let’s say a mutual fund has Rs 1,000 crore in AUM and charges 2% TER = Rs 20 crore total annual fees.
- Rs 10 crore goes to distributors
- Rs 10 crore to the AMC itself
Now suppose the fund buys and sells Rs 500 crore each, total trades = Rs 1,000 crore.
At the current rate (0.12%), brokerage = Rs 1.2 crore, of which around Rs 0.9 crore goes to brokers.
Under SEBI’s new rule:
- Only Rs 0.2 crore is allowed as brokerage outside TER.
- The extra Rs 0.7 crore must come out of the AMC’s share of TER.
- So instead of Rs 10 crore, the AMC only gets Rs 9.3 crore — a 7% cut in their fees.
How Will It Be Beneficial For Investors?
Rajani Tandale, Senior Vice President, Mutual Fund at 1 Finance says investors will benefit from lower Total Expense Ratios (TERs), directly enhancing net returns.
Tandale states that tighter constraints make passive or index strategies relatively more attractive, as they operate with lower overheads.
“This could accelerate the shift among AMCs, since justifying higher costs for active management will become increasingly difficult under stricter limits,” Tandale adds.
Shenoy said ‘this is a good move for investors’. “Most of you pay a lot lesser in brokerage today and it’s time that us that manage mutual funds also reduce our transaction costs.”
Varun Yadav is a Sub Editor at News18 Business Digital. He writes articles on markets, personal finance, technology, and more. He completed his post-graduation diploma in English Journalism from the Indian Inst…Read More
Varun Yadav is a Sub Editor at News18 Business Digital. He writes articles on markets, personal finance, technology, and more. He completed his post-graduation diploma in English Journalism from the Indian Inst… Read More
November 03, 2025, 14:23 IST
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