It’s been a choppy week for listed asset management stocks after SEBI floated a consultation paper (https://tinyurl.com/sebimfregs) to simplify and tighten how mutual funds charge investors. Some AMC scrips fell roughly up to 5 per cent in about a week’s time since the paper came out, as the market priced in lower profitability if parts of the proposal stick.
For mutual fund investors, though, the key questions are narrower and more practical: What exactly is SEBI changing, how might AMCs and distributors respond and what likely impact will be on your costs after implementation? We focus on those investor-level effects and highlight the specifics.
Changes in fees
SEBI has proposed big shifts.
First, it wants to make expense ratios cleaner and more comparable. The TER, which is the fee investors pay for fund management and operating costs, will now exclude statutory levies such as GST, stamp duty, STT and CTT. These will appear separately, outside the TER. At the same time, SEBI has standardised how TER must be defined and disclosed. Fund houses will have to show the full breakdown of all expenses charged to investors under clear cost heads. This ensures greater transparency even though the headline TER itself may look slightly lower.
Second, the TER slabs themselves are being trimmed. SEBI has proposed a reduction of about 10-15 basis points for open-ended funds and a slightly steeper cut for some close-ended categories. A basis point (bp) is one-hundredth of a per cent, so the change may appear small but effectively lowers the ceiling on what fund houses can charge within each asset-size band. In practice, this means two funds of similar size will now have to operate under tighter cost limits. For investors, the immediate reduction may seem modest, but over time it nudges the industry toward leaner, more cost-efficient operations.
Third, SEBI has sharply reduced the brokerage and transaction costs that can be charged to a scheme. These are now capped at 2 basis points for cash-market trades (earlier 12 bps of trade value) and 1 bp for derivatives (earlier 5 bps). The intent is to ensure investors bear only the true cost of trade execution, not additional services sometimes bundled into brokerage, such as research or corporate access. This change will matter most for high-turnover categories like arbitrage funds and some active-equity schemes, where brokerage formed a meaningful share of total expenses.
Fourth, SEBI plans to remove the additional 5-basis-point charge that fund houses could levy when a scheme had an exit load. This move simplifies the fee structure and eliminates small add-ons that quietly raised investor costs. To neutralise the removal of the old 5-bps exit-load add-on, SEBI has built that amount into the base limits for the first two AUM slabs before recalibrating overall TER limits downwards. The change looks minor but sets an important precedent: Small levies, when stacked over time, blur cost transparency.
At the same time, SEBI is considering allowing fund houses to introduce performance-linked fees — where charges rise or fall depending on how well the fund performs against its benchmark. The detailed rules for this variable-fee model are yet to be announced.
Investor cost implications
The TER-ex-levies presentation is cleaner and future-proofs you against tax changes being masked inside TER. Yet, your total outflow may not fall much if levies are simply itemised outside TER while base fees settle near the new slab ceilings. Some experts indicate the earnings hit for AMCs is significant if they absorb these changes; naturally, they will explore offsets Previous experience suggests some proposals could get debated extensively.
Here are some likely AMC and distributor behaviours you should anticipate.
Re-pricing and mix shifts: AMCs may maintain headline TERs close to new limits, then emphasise categories with inherently higher permissible fees (certain thematic/hybrid funds) to protect revenue. For you, that shows up as stronger marketing of “premium” strategies. Guard against style-drift in your portfolio.
Lean execution and more electronic trading: With a 2/1 bp execution cap, expect AMCs to consolidate broker panels and route more flow through low-touch channels. Short-term execution variance in small caps could blip; long-run impact on returns should be minor for diversified investors.
Distributor economics: If AMCs cannot fully absorb the hit, regular-plan commissions could tighten at the margin. Expect greater push toward direct plans and digital service models over time. That’s not bad for savvy investors but can reduce hand-holding for first-timers.
Product design, new launches
Beyond the headline fee items, the SEBI consultation paper contains three changes with tangible investor effects.
* NFO costs to be borne by AMCs (till allotment): Launch-phase ads/printing/registrar costs cannot be charged to the scheme. Practically, this should discourage me-too NFOs and make launches more selective. The adjustment may appear as fewer splashy campaigns and leaner promotions. This is not a negative if you prefer funds with proven track records.
* Winding-up cost hygiene: Only genuine closure-related costs (custody, audit, investor communication) may hit the scheme during wind-up; management and distribution fees are excluded. That improves net recovery for investors if a scheme shuts. If there’s resistance from the industry, it will likely be about what counts as “closure cost.” Investors should monitor winding-up notices for itemised charges.
* AMC “other business” with guardrails: AMCs can run PMS/advisory or similar non-MF activities, but via segregated units with trustee oversight to limit conflicts. For you, the idea is that mutual fund investors aren’t disadvantaged versus high-fee, non-pooled clients. If compliance is weak, the risk is resource diversion. Here again, rely on trustee reports and mandated disclosures to surface any red flags.
SEBI has also proposed an update in how fund houses share information. AMCs can now send reports and updates digitally instead of relying on print. Scheme-change notices in newspapers will be replaced by mandatory website updates and digital alerts. Half-yearly portfolio statements, which duplicated monthly disclosures, will also be discontinued. These steps cut paperwork and speed communication, but investors must ensure their email and mobile details are current as digital delivery becomes the main channel.
Published on November 8, 2025