SEBI Signals a New Era for Mutual Funds with Sweeping Reform of Fee and Expense Framework

India’s mutual fund industry is set for a structural reset after the Securities and Exchange Board of India (SEBI) approved a far-reaching reform package aimed at redefining how investors are charged and how fund costs are disclosed. The changes, cleared at the regulator’s latest board meeting, are expected to significantly enhance transparency, improve long-term investor returns, and bring sharper accountability across the asset management ecosystem.

The reform marks one of SEBI’s most decisive interventions in the mutual fundspace in recent years, at a time when retail participation, SIP inflows, and household financialisation are at record levels.

Clearer Costs, Cleaner Disclosures

At the heart of the overhaul is a re-engineering of the Total Expense Ratio (TER) — the single most important cost metric for mutual fund investors. SEBI has decided that statutory levies such as taxes, stamp duties, and transaction charges will no longer be bundled within TER. Instead, these will be disclosed separately.

This move is expected to give investors a far clearer picture of what they are actually paying fund houses for managing their money, rather than costs imposed externally by regulation or taxation.

For MSME owners, startup founders, and professionals — a core SMEStreet readership segment — this change brings mutual funds closer to global best practices in cost transparency.

Aligning Fees with Performance

In another notable shift, SEBI has opened the door for performance-linked fee structures in select mutual fund schemes. While traditional fixed-fee models will continue, asset managers may now offer schemes where a portion of fees is linked to how the fund performs against predefined benchmarks.

Industry observers believe this could reshape fund management incentives, pushing AMCs to focus more sharply on consistency and risk-adjusted returns rather than asset accumulation alone.

Impact on Distributors and Fund Houses

The regulator has also rationalised brokerage and distribution-related costs, a move likely to affect how mutual funds are sold and advised. While this could pressure margins for intermediaries in the short term, SEBI’s intent is to ensure that investor interests remain central to the distribution ecosystem.

For fund houses, the reforms will require operational recalibration, clearer communication with investors, and possibly a redesign of product strategies.

A Strong Signal to Long-Term Investors

SEBI’s overhaul sends a clear message: India’s mutual fund industry is entering a phase where simplicity, fairness, and investor trust will define growth. With household savings increasingly flowing into market-linked instruments, the regulator appears focused on building a system that rewards patience and transparency.

SMEStreet will track how these changes influence investor behaviour, fund performance, and capital market participation over the coming quarters.