SEBI expense ratio rules changed, know what the effects will be on mutual fund investors
The market regulator SEBI has introduced a major change for mutual fund investors. This change directly impacts your finances, as it involves a new method for determining and displaying fund fees, or the expense ratio. While this rule might seem a little complicated at first glance, its main purpose is to clearly inform investors about where their money is being spent and how much the fund house is charging them in fees. This will curb hidden costs and provide greater transparency for investors.
Until now, the expense ratio of mutual funds has been a mixed package. It included fund management fees along with taxes and other government charges. This made it difficult for investors to understand how much the fund house was actually charging. Now, SEBI has changed this and introduced a new concept called the Base Expense Ratio (BER).
BER stands for the actual fund management fee. This will no longer include GST, Securities Transaction Tax (STT), stamp duty, SEBI fees, and exchange charges. All these charges will be levied separately, based on actual expenses. In simple terms, the total cost will now be broken down into four components: BER, brokerage, regulatory levies, and statutory levies. This will allow investors to clearly see where their money is going.
SEBI has also reduced the maximum limit for BER (Basic Expense Ratio) in several categories. For example, it has been reduced from 1% to 0.9% for index funds and ETFs. Lower limits have also been set for equity-based fund-of-funds and closed-ended schemes. This means that fund houses will no longer be able to charge arbitrarily high fees.
In the short term, investors may not experience any significant gains or losses, as taxes and government charges will still apply as before. However, in the long run, this rule will increase transparency, prevent hidden costs, and make fund management more disciplined. The biggest advantage is that investors will now be able to compare and understand more effectively which funds are truly cost-effective.
