SEBI’s new expense ratio framework, in force since 1 April 2026, has been reported as a fee cut: the ceiling on an open-ended equity scheme fell from 2.25% to 2.10%. The board memorandum behind it describes the same limits as settled “with a view to ensuring minimal impact on AMCs’ cost structure”.

The SEBI (Mutual Funds) Regulations, 2026 were approved at the board’s 212th meeting on 17 December 2025 and replaced a set of regulations that had run since 1996. They govern an industry holding ₹87.08 lakh crore as on 31 August 2026. What follows concerns one component of the revision: the permitted ceiling on an open-ended equity scheme, and what has been allowed to sit outside that ceiling, from 1996 to now. It is not a comparison of Indian fund costs with those in other markets.

The Slab Structure Went Unchanged for 23 Years

The original equity table charged 2.50% on the first ₹100 crore of assets, 2.25% on the next ₹300 crore, 2.00% on the next ₹300 crore and 1.75% on the balance. SEBI’s 2018 board memorandum records that these limits were set when the regulations were framed in 1996 and had “not been modified or changed since then.” They ran until 1 April 2019.

For most of that period the ceiling functioned as the price. In FY2017-18, 49.82% of equity schemes in regular plans charged the full slab rate and a further 22.28% charged within 0.25% of it - roughly 72% at or near the cap. Debt schemes behaved differently: 7.44% charged the full rate, and 74.71% charged at least 1.00% below it. SEBI drew the conclusion itself, that “economies of scale have not been passed to retail investors.”

That is why the ceiling is the number worth tracking rather than the average. Where a cap binds for three schemes in four, the cap is the fee. It is also the input with the best record of predicting what follows: Russel Kinnel of Morningstar tested expense ratios against the other variables Morningstar tracked and found fees the strongest predictor of subsequent returns, with cheapest-quintile US equity funds recording a 62% success rate over 2010 to 2015 against 20% for the priciest.

Two Decades of Decisions, on One Rail

The ceiling has been rewritten three times in thirty years. Around those three revisions sits a longer record of decisions about what the ceiling contains, and that record runs in both directions. Below is the sequence from 1996 to now, with each decision marked by whether it moved the published limit, put a charge outside it, or took one back in.

  • Ceiling moved
  • Charge placed outside the ceiling
  • Charge removed or pulled back inside
  • Proposed, not adopted as put
  1. 1996
    The slab table is written

    Regulation 52(6) caps an open-ended equity scheme at 2.50% on the first ₹100 crore, 2.25% on the next ₹300 crore, 2.00% on the next ₹300 crore and 1.75% on the balance; debt schemes 25 basis points lower. SEBI’s 2018 memorandum records that these limits were set when the regulations were framed and had “not been modified or changed since then.”

  2. 31 December 2007
    Entry load waived on direct applications

    Circular SEBI/IMD/CIR No.10/112153/07 removes the entry load on applications received by the AMC directly - online, or at its own counters - rather than through a distributor. The first separation of the price of the fund from the cost of selling it.

  3. 30 June 2009 · effective 1 August
    Entry load abolished outright

    Upfront commission is to be paid by the investor directly to the distributor, on the investor’s own assessment of the service received.

    Distribution still had to be funded, and moved onto the AMC’s books: commission paid from AMC books rose from about 11% of industry revenue in FY2009-10 to 22% by FY2017-18.

  4. 15 March 2010
    The 1% no-load management fee is shut off

    Regulation 52(3) entitled an AMC to an additional management fee of up to 1% of weekly average net assets on any scheme launched on a “no load” basis. After August 2009 every scheme was no-load, which would have handed back much of what the entry load ban had taken. Circular SEBI/IMD/CIR No 18/198647/2010 bars AMCs from collecting it, and the provision is later deleted from the Regulations.

  5. 22 August 2011
    A per-transaction sales charge returns

    Circular CIR/IMD/DF/13/2011 permits ₹100 per subscription of ₹10,000 or more, and ₹150 for a first-time investor, deducted from the subscription amount and paid to the distributor. Two years after the entry load went, an investor-borne sales charge is back - sitting outside the expense ratio, so the expense ratio does not show it.

  6. 13 and 26 September 2012 · effective 1 October
    Four charges are moved outside the ceiling at once

    The circular on re-energising the industry, and the amendment inserting Regulation 52(6A) a fortnight later: an additional 30 basis points for inflows from beyond the top 15 cities; service tax on investment and advisory fees charged over and above the cap; brokerage and transaction costs of up to 12 basis points cash and 5 basis points derivatives outside it; and, against exit load now being credited to the scheme rather than funding distribution, an additional 20 basis points on the whole AUM. At least 2 basis points is ring-fenced inside the cap for investor education.

  7. 1 January 2013
    Direct plans

    Every scheme must carry a separate plan, with its own NAV, for investors who arrive without a distributor, excluding distribution expenses and commission. The one change in this sequence that took a cost out without putting anything back.

  8. 2 February 2018 · effective 1 April
    B15 becomes B30

    The 30 basis point geographic allowance is re-based from inflows beyond the top 15 cities to inflows beyond the top 30.

  9. 30 May and 5 June 2018
    Twenty basis points becomes five

    Notification SEBI/LAD-NRO/GN/2018/14 amends Regulation 52(6A)(c) and the circular that follows substitutes “0.20” with “0.05” in every circular carrying it. The cushion granted in 2012 is not withdrawn but reduced, “wherein it was noted that the same may be reviewed in future.” The same circular requires the expense ratio to be disclosed daily and three working days’ notice before any increase.

  10. 22 October and 13 December 2018 · effective 1 April 2019
    The 1996 slabs are replaced

    Equity: 2.25% on the first ₹500 crore, 2.00% on the next ₹250 crore, 1.75% on the next ₹1,250 crore, 1.60% on the next ₹3,000 crore, 1.50% on the next ₹5,000 crore, then 5 basis points off for every further ₹5,000 crore to ₹50,000 crore, and 1.05% on the balance. Close-ended schemes capped at 1.25%, index funds and ETFs at 1.00%. All commission must be paid from the scheme, on a full trail model with no upfront payment, and the B30 allowance is narrowed to retail inflows paid as trail only.

    The 5 basis point allowance and GST on management fees both stay outside the new ceiling.

  11. 25 March 2019
    “Retail” is defined

    For the B30 allowance, retail means inflows up to ₹2 lakh per transaction from individual investors. Upfronting of trail commission is permitted for first-time investors’ SIPs up to ₹3,000 a month, and miscellaneous expenses may be met from the AMC’s books at the lower of actuals and 2 basis points.

  12. 2019 to 2022
    Nothing

    Four years with no change to the ceiling and none to what sits outside it, while industry assets went from about ₹24 lakh crore to about ₹38 lakh crore. Whatever the 2018 review had settled, scale did not reopen it.

  13. 24 February 2023 · effective 1 March
    The geographic allowance is suspended

    In a letter to AMFI, SEBI sets out how the 30 basis point incentive was being worked: splitting of transactions, churning of investments, switch transactions counted toward the calculation, and the charge levied in selected schemes rather than across the book. Fund houses stop charging it from 1 March.

  14. 18 May 2023
    The boundary is proposed to move the other way

    The consultation paper would set the limit at AMC level rather than scheme level and make it contain everything - brokerage, securities transaction tax, GST on management fees, the B30 incentive, the 5 basis points. Because it would contain everything, the proposed headline equity limit goes up, to 2.55% on the first ₹2,500 crore. SEBI’s own data in the same paper: in equity schemes under ₹500 crore in FY2021-22 the base cap was 2.25%, the base expense ratio charged in regular plans was 2.12%, and the all-in figure investors actually paid was 2.78%.

  15. 28 June 2023
    Deferred

    The board defers the proposal after receiving revised impact data from the industry. Asset manager shares rally on the deferral.

  16. 12 September 2025
    The geographic allowance returns, narrower

    1% of a first investment, capped at ₹2,000 per investor, extended to new women investors in the top 30 cities as well as new investors from beyond them. The circular follows on 27 November and implementation is put back to 1 March 2026. This time the money comes from the 2 basis points already ring-fenced inside the expense ratio for investor education, not from a new allowance on top of it.

  17. 28 October 2025
    Consultation: the boundary moves outward

    A comprehensive review of the 1996 Regulations proposes that the base expense ratio exclude all statutory levies, with the equity limits cut to 2.10 / 1.90 / 1.60 / 1.45 / 1.35 and 0.90 on the balance, brokerage capped at 2 basis points cash and 1 basis point derivatives, and the 5 basis points removed.

  18. 17 December 2025
    Approved, and softened

    At its 212th meeting the board approves the SEBI (Mutual Funds) Regulations, 2026. Against the consultation, the three highest equity bands are revised up by 5 basis points - 1.45 to 1.50, 1.35 to 1.40, 0.90 to 0.95 - and the brokerage caps are set at 6 and 2 basis points rather than 2 and 1, “with a view to ensuring minimal impact on AMCs’ cost structure.”

    Asset manager shares rose up to 7% the following day. The two sub-paragraphs recording the calibration are published as “excised for reasons of confidentiality.”

  19. 1 April 2026
    In force

    The equity ceiling is 2.10% at the top slab. Statutory levies sit outside the base expense ratio and are charged on actuals; total expense ratio survives as base plus brokerage plus regulatory levies plus statutory levies. The 5 basis points is gone, fourteen years after the 20 it descends from.

    Performance-linked expense ratios are permitted in principle, with the modalities left to a circular not yet issued.

Source: SEBI circulars, gazette notifications, board memoranda and consultation papers, as dated. Dates are the date of the instrument; where an effective date differs, both are given.

Two entries in that record do more work than the rest. The first is May 2023, the only occasion on which the boundary was proposed to move inward rather than outward, and it shows what that does to the headline number. Bringing brokerage, securities transaction tax and GST inside the cap, and setting it against the AMC’s total assets rather than the scheme’s, would have raised the proposed equity limit to 2.55%. The cap went up in the draft because it would finally have been measuring everything.

The second is the figure in the same paper that says what the old ceiling was worth as a description of cost. For equity schemes below ₹500 crore in FY2021-22, against a base cap of 2.25%, the base expense ratio charged in regular plans averaged 2.12% - and the all-in figure investors actually paid averaged 2.78%. SEBI’s own conclusion was that “considering that there is no upper cap on additional expenses, the actual expense to investor is considerably higher than the prescribed base TER limits.” The distance between the cap and the payment was 53 basis points, which is more than three times the headline cut announced in December 2025.

The claim above, that where a cap binds for three schemes in four the cap is the fee, therefore needs its second half. The cap is what the manager charges. It has never been what the investor pays.

The 2018 Reform Left Mid-Sized Schemes Where They Were

Blending each regime’s marginal slabs into the weighted-average ceiling an investor actually faces shows where the reforms landed and where they did not.

Blended ceiling on an open-ended equity scheme by scheme AUM, under the 1996, 2019 and 2026 slab tables. Source: author’s calculations on the slab tables in SEBI’s 2018 and 2025 board memoranda. The 1996 and 2019 limits include statutory levies; the 2026 limits exclude them, so the lowest line is not a like-for-like measurement of the other two.

Below ₹500 crore the 2019 ceiling was lower than the 1996 one - by 25 basis points at ₹100 crore, narrowing to 6 basis points at ₹400 crore. Above roughly ₹2,500 crore it was lower by progressively more: at ₹30,000 crore, 1.454% against 1.760%. But between ₹500 crore and ₹700 crore the two structures produce an identical ceiling, and from about ₹700 crore to ₹2,090 crore the 2019 structure sits marginally above the 1996 one, by 1.6 basis points at its widest.

The cause is structural rather than intentional. The 1996 table stepped down at ₹100 crore, ₹400 crore and ₹700 crore. The 2019 table held its top rate all the way to ₹500 crore before stepping. Cutting the top rate while pushing the first step outward can leave the blended figure where it was, and for a band of mid-sized equity schemes it did.

2026 Moved the Boundary of the Number, Not Only Its Level

This change differs in kind from every revision before it, because it redefines what the number contains rather than only where it is capped. The base expense ratio now excludes all statutory levies: STT, CTT, GST, stamp duty, SEBI fees and exchange fees are charged on actuals, over and above the permitted brokerage. Total expense ratio survives as an arithmetic sum - base expense ratio plus brokerage plus regulatory levies plus statutory levies.

Two of the cuts are unambiguous. The cash market brokerage cap of 12 basis points included statutory levies and amounted to 8.59 basis points net; it is now 6 basis points exclusive of levies. The derivatives cap of 5 basis points, 3.89 net, is now 2. And the 5 basis point allowance has been removed outright - fourteen years after the 20 basis points it descends from was granted as a transitional measure, and on SEBI’s note that the additional charge applied to the entire AUM “irrespective of any exits by unitholders.”

The slab cuts are where the arithmetic stops being straightforward. The equity ceiling falls 15 basis points at the top slab and 10 at the bottom. But the ceilings it is being compared against included levies that the new ones do not. A 15 basis point cut set against an undisclosed quantity of levies removed is not a 15 basis point cut to anybody.

The Calibration That Set the New Limits Is Not on the Record

SEBI states the principle plainly. The board note records that the thresholds proposed in the consultation paper of 28 October 2025 for equity schemes at ₹2,000 crore and above were “revised upwards to limit the impact on cost structure of AMCs broadly to the extent of exclusion of statutory levies from the base expense ratio limits.”

The industry had asked for precisely that. Respondents argued the proposed reduction exceeded the actual impact of the levies and sought a 5 basis point upward revision on the higher slabs. AMFI additionally sought a 10 basis point allowance for direct plans, which SEBI refused on the ground that it “would also constitute a structural change with potential increase in cost for unitholders of direct plans.” SEBI accepted the first request and rejected the second.

What is not available is the arithmetic. The two sub-paragraphs recording the modifications SEBI made to the consultation paper’s limits, at 4.5.2.3 (v) and (vi), appear in the published memorandum as “(This has been excised for reasons of confidentiality)” - and (v) is one of the two modifications the approved proposal incorporates. Whether 15 basis points matches the levies removed is therefore not something a reader of the public record can check.

Outside estimates run in both directions. Industry commentary puts the net saving at 5 to 10 basis points, against SEBI’s own calibration language pointing to neutrality. The market read it as the latter: asset manager shares rose by up to 7% the day after the board meeting, and PL Capital called the final rules “broadly earnings-neutral, as the GST exclusion offsets part of the fee reduction”. Five months into the regime, no aggregate realised figures have been published, and the levies now charged on actuals are the quantity nobody has measured. The range is the finding; the point estimate is not.

What This Means When Reading a Fee

None of this establishes that the reform was not worth doing. Separating the AMC’s fee from the taxes it collects is a real improvement in disclosure, the brokerage caps are genuinely lower, and retiring a fourteen-year-old transitional allowance is overdue rather than cosmetic. The narrower claim is that the level of the disclosed number and the amount an investor pays have moved together less often than three decades of reporting on these reforms implies.

Compare regimes on what is paid, not on what the ceiling says. A ceiling that excludes levies and a ceiling that includes them are two different measurements wearing the same units.

Read the base expense ratio as one line of four. Brokerage, regulatory levies and statutory levies are now disclosed separately and charged on actuals, which means a manager’s turnover reaches the investor more directly than it did when it was buried inside a single capped figure.

And watch what is granted alongside the next cut. Performance-linked expense ratios are now permitted in principle, with the modalities left to a circular SEBI has yet to issue. That circular, rather than the slab table, is where the next offset would sit.

The ceiling has come down. The boundary around it has moved further. Which of the two an investor actually paid is a question the published record does not yet answer.

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