Sebi cuts mutual fund fees: How 10-15 bps can add Rs 5 lakh to wealth

A small cut in fund expenses can quietly compound into meaningful long-term gains for investors

The Securities and Exchange Board of India’s (Sebi’s) decision to lower mutual fund expense ratios and introduce a clearer Base Expense Ratio (BER) framework may appear incremental, but it carries meaningful implications for long-term investors.

 

Approved under the new Mutual Fund Regulations, 2026, the changes lower base expense limits by 10-15 basis points (bps) across categories and redraw how costs are disclosed.

 

What exactly has changed

Under the new framework, the earlier all-in Total Expense Ratio (TER) has been unbundled. Expenses are now split into three distinct parts:

 

The Base Expense Ratio, which covers the actual cost of running a fund

 

Brokerage paid for executing trades;

 

Statutory and regulatory levies such as GST, securities transaction tax, and exchange fees.

 

“This segregation strengthens investor protection and brings much-needed transparency to mutual fund costs,” says Nilesh D Naik, head of investment products at Share.Market (PhonePe Wealth).

 

According to him, while the BER limits have been lowered by 10-15 bps, statutory levies will now be charged separately on actuals, meaning the combined cost may broadly resemble earlier levels for many schemes.

 

A key tangible benefit, however, comes from the removal of the additional 5 bps, that schemes with exit loads were allowed to charge earlier, resulting in a direct cost saving for such investors, Naik adds.

 

Why small cuts still matter over time

Even modest cost reductions can compound into meaningful sums over long periods.

 

Aditya Agrawal, chief investment officer at Avisa Wealth Creators, points out that a 10-15 bps cut, though barely visible in the short term, can significantly improve outcomes over decades.

 

For instance, a ~10,000 monthly SIP over 20 years at a gross return of 12 per cent could see an additional Rs 3-5 lakh purely due to a 0.15 per cent lower expense ratio. Extending the investment to 25 years can lift this benefit to Rs 7-8 lakh, according to Agrawal.

 

Shweta Rajani, head of mutual funds at Anand Rathi Wealth Limited, strikes a more measured note.

 

She says that after factoring in statutory charges and brokerage, the effective benefit for investors may narrow to about 4-8 bps.

 

Even then, she notes, this can improve compounding efficiency and add around 0.5-0.8 per cent to long-term wealth over 15-20 years.

 

Should investors switch funds?

Experts are clear that lower costs alone are not a reason to churn portfolios.

 

“Exit loads, capital gains tax, and disruption to compounding often outweigh marginal fee savings,” Agrawal says. Rajani adds that investors should instead focus on consistency of performance, risk-adjusted returns, and alignment with financial goals.

 

A transparency reset

Beyond rupee savings, the larger gain lies in clarity. The BER framework allows investors to see what they pay for fund management versus taxes and trading costs.

 

“It helps investors compare schemes more objectively and question whether higher costs are justified,” Agrawal says.

 

In short, Sebi’s move is less about chasing the cheapest fund and more about empowering investors to make informed, long-term decisions where costs, performance, and discipline are viewed together.