Summary of this article
SEBI has replaced the 1996 mutual fund rules with the 2026 regulations.
Mutual Funds 2026 Regulations: TER split improves transparency, not big savings.
Costs may fall slightly by 5–7 bps.
SEBI has updated the rulebook governing mutual funds, replacing the 1996 regulations with the Sebi (Mutual Funds) Regulations, 2026. While the changes sound significant, especially around how expenses are defined, according to experts, the impact on investors’ overall costs is likely to be limited. The bigger shift is about clarity and transparency, not a sharp reduction in what investors ultimately pay, they say.
The most important change is how the total expense ratio (TER) is structured. Until now, investors saw a single TER number that bundled everything together. Under the new rules, expenses will be split into three clear parts. First is the Base Expense Ratio, which represents the actual cost of running the scheme. Second is brokerage paid for executing trades. Third is statutory and regulatory levies such as STT, GST, stamp duty, exchange fees, and SEBI charges that arise when trades are executed.
This separation is meant to make costs easier to understand and compare across fund houses. “Breaking TER into a clearer Base Expense Ratio plus statutory and other charges brings much-needed transparency and enables easy comparisons across fund houses,” says Nitin Agarwal, CEO – Mutual Funds at InCred Money. He adds that lowering the caps on base expenses also reinforces India’s position as a low-cost mutual fund market.
SEBI has reduced the permissible limits for the Base Expense Ratio by around 10 -15 basis points, depending on the size of the scheme. At first glance, that suggests cheaper mutual funds. But the context matters. Schemes are now allowed to charge statutory levies separately, over and above the Base Expense Ratio.
As a result, the combined cost may look very similar to the old structure. “This, in itself, is unlikely to result in any material change for the investors as Base Expense Ratio and statutory levies combined will approximately add up to the earlier expense ratio limits,” says Nilesh D Naik, Head of Investment Products at Share. Market (PhonePe Wealth). In simple terms, the same costs are being shown more transparently, rather than being fully absorbed within one headline TER number.
That said, there are a few areas where investors will see real savings. One clear benefit comes from the removal of an extra 5 basis points that schemes with exit loads were earlier allowed to charge as a temporary measure. “This will result in 5 bps cost reduction for investors in schemes that have an exit load,” Naik points out. For long-term investors who typically hold such schemes, this is a direct positive.
Brokerage costs have also been tightened. For cash market trades, the brokerage cap has been reduced to 6 basis points from the earlier 8.59 basis points. Agarwal notes that “capping cash brokerage around 6 bps versus the earlier 8.5 bps should reduce overall cost substantially.” Derivative trades, used by schemes such as arbitrage and equity savings funds, will also become slightly cheaper as brokerage caps have been lowered there as well.
Taken together, these changes are expected to shave a few basis points off costs, but not dramatically. Naik estimates that “overall I expect the expense ratio in open-ended equity-oriented schemes to reduce between 5–7 bps.” While this may seem small, over long investment periods, even modest cost savings can add up.
The bigger takeaway from SEBI’s new regulations is not about sudden gains for investors, but about cleaner disclosures and better accountability. As Agarwal puts it, the changes strengthen the investing ecosystem with “lower costs, better disclosure and fairer outcomes.”
For investors, the message is straightforward: don’t expect a big drop in expense ratios overnight, but do expect more transparency and slightly better cost discipline over time.
