The “Service Charge” Surprise
We have all experienced this. You go to a restaurant, order a ₹500 pasta, and expect to pay ₹500. Then the bill comes. GST, service charge, extra fees you never noticed on the menu. Suddenly, your ₹500 pasta costs ₹750.
For years, mutual funds worked in a similar way. You saw an expense ratio of 1.5 percent and assumed that was the full cost. But inside that number were taxes, trading costs, and government charges. Everything was mixed together. You could not tell who was earning what.
SEBI has finally stepped in and asked for a clear, item by item bill.
Earlier, mutual funds were like an all inclusive resort. You paid one price, but never knew how much went to food, rooms, or profit.
Now, SEBI is forcing funds to show the full breakup clearly.
While most of us were busy welcoming the New Year, SEBI was busy rewriting mutual fund rules. For the first time in nearly 30 years, the old 1996 regulations have been replaced by the new SEBI (Mutual Funds) Regulations, 2026.
The biggest change is simple.
The old Total Expense Ratio (TER) is being replaced with a new term called Base Expense Ratio (BER).
Earlier, fund houses showed one combined number that included management fees, GST, and other charges. Now they must separate it.
The BER will show how much the fund manager actually earns. Taxes and statutory charges will be added separately, based on real costs.
SEBI did not stop at transparency. It also reduced several small fees that quietly eat into long term returns.
- Lower brokerage costs: The maximum brokerage fee has been cut from 12 basis points to 6 basis points.
- Exit load extra fee removed: Funds earlier charged an extra 0.05 percent just because they had an exit load. This is now gone.
- Lower cap for index funds: The maximum expense limit for index funds and ETFs is now 0.90 percent, earlier it was 1.00 percent.
This tiny fee has been removed. On a ₹50 lakh portfolio over 20 years, it can save over ₹1.5 lakh through compounding alone.
This change strongly supports low cost investing.
When active funds clearly show their true management fee, it becomes easier to see which funds are expensive and whether they are actually worth it.
If a fund charges a high BER but barely beats the index, investors will notice. There is no place left to hide behind bundled costs.
In the years ahead, more money is likely to move toward index funds and low cost options.
Keep an eye on your CAS (Consolidated Account Statement). The format will change. Expense ratios may fall slightly, around 5 to 7 basis points, but do not expect dramatic cuts.
Also watch distributor behaviour. With lower earnings, commissions may reduce. If your mutual fund agent suddenly stops calling with new schemes, this could be why.
The Bottom Line
SEBI is not making mutual funds much cheaper, but it is making them far more honest. You can finally see whether you are paying for real skill or just hidden charges.
Fun fact: The old rules were written in 1996, when the Sensex was near 3,000. Today it is above 85,000. This update was long overdue.
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Subscribe to First ScrollSources: SEBI Consultation Paper
