Shares of asset management companies were trading sharply higher on Thursday after the Securities and Exchange Board of India announced a major overhaul of rules and regulations for mutual funds, including a revamp of their fee structure.
Nippon Life India Asset Management surged 4 per cent in intra-day trading, UTI Asset Management was up over 2 per cent, and HDFC Asset Management accelerated around 6 per cent. Aditya Birla Sun Life AMC was up over 1 per cent. Shares of recently listed Canara Robeco AMC also jumped by nearly 7 per cent.
SEBI held its board meeting on Wednesday, and key approvals included an overhaul of mutual fund expense ratios and their disclosures.
The market regulator has also streamlined eligibility criteria for sponsors of mutual funds, reorganised roles and responsibilities of AMCs and Trustees under common thematic headings for greater clarity and reorganised provisions related to the prudential investment limits and valuation of securities for consolidation and ready reference.
Mutual Funds typically charge investors a fee, which is called the expense ratio. SEBI has now introduced the concept of base expense ratio. Expense ratio limits will now be called the base expense ratio, and it will exclude statutory and regulatory levies like GST, stamp duty, SEBI fees, STT (securities transactions tax), etc.
The statutory and regulatory levies incurred for execution of trades will now be charged on actuals, over and above the permissible brokerage limits. The total expense ratio will now be the sum of the base expense ratio, brokerage, regulatory levies and statutory levies.
The base expense ratio limits have also been revised. For instance, for index funds and exchange-traded funds (ETFs), the base expense ratio has been reduced from the current 1 per cent (which includes statutory levies) to 0.90 per cent excluding levies. For fund of funds having at least 65 per cent of the AUM in equity-oriented schemes, the base expense ratio has been revised to 2.10 per cent from 2.25 per cent.
Also, the larger the assets under management of a scheme, the lower the base expense limit will be. For instance, if an equity-oriented scheme has an AUM in the Rs 750 crore to Rs 2,000 crore range, the base expense ratio has been reduced to 1.60 per cent from 1.75 per cent. If the AUM is between Rs 45,000 crore and Rs 50,000 crore, the base expense ratio will be 1.0 per cent, versus 1.10 per cent earlier. Equity schemes with AUM greater than Rs 50,000 crore will have a base expense ratio of 0.95 per cent.
SEBI also announced the rationalisation of brokerage limits and the removal of additional expense allowance, which were transitory.
“We believe the comprehensive mutual fund fee overhaul is a progressive step that reinforces an investor-first approach and will lower costs, enhance transparency around charges, and ultimately improve net long-term returns for mutual fund investors,” said Aditya Agrawal, chief investment officer at Avisa Wealth Creators.
Lower and clearer all-in costs improve the value proposition of starting SIPs as low as a few hundred rupees a month, making it easier for both urban and rural households to shift gradually from informal savings into regulated market products, felt Arun Raste, the MD and CEO of NCDEX.
According to JM Financial Institutional Securities analysts Raghvesh and Ajit Kumar, while making the charges more transparent for customers, the approved changes also protect the mutual fund ecosystem, which has generated wealth for retail customers and enhanced financial inclusion.
“The separation of levies, while changing the TER (total expense ratio) structure, should counter the impact from the removal of exit load, while the cut in brokerages is much lower than initially proposed. We expect the impact on AMCs, distributors and brokers to be very marginal,” said the analysts.
Earlier, GST on commissions to agents and other statutory levies were paid out of the total expense ratio. Looking at scheme profit and loss statements, Raghvesh and Kumar estimate that the removal of GST would give a benefit of 12-13 bps to the larger asset management companies.
The analysts pointed out that the net impact from changes in slabs and removal of exit load would result in a 2-4 per cent impact on revenues and 3-4 per cent impact on profit for some of the listed AMCs, which will be significantly lower than the 6-8 per cent impact they had estimated post the consultation paper that was issued earlier. They also expect the fund houses to pass on some of the impact to the distributors, effectively resulting in an earnings cut of less than 2 per cent.
India’s mutual fund industry has seen strong traction in the last few years as more Indians have taken to investing in capital markets. Close to Rs 30,000 crore now is invested per month via systematic investment plans (SIP) alone. Net AUM of the mutual fund industry topped Rs 80 lakh crore in November 2025.
A recent report released by Bain & Co. in partnership with broking firm Groww projects mutual fund AUM will exceed Rs 300 lakh crore by the financial year 2035, supported by penetration rising from 10 per cent to 20 per cent, digital enablement, and growth from mass and mass-affluent households beyond the top 30 cities.
