SEBI’s latest proposals may feel tough on the industry—but for investors, they are a structural upgrade: lower ongoing costs, line-item transparency, fairer brokerage, and accountability tied to performance.
Why this matters now
Over the last few years, a large share of actively managed equity funds struggled to beat broad market indices. When Total Expense Ratio (TER) remains elevated, it further erodes investor returns. SEBI’s proposals directly address this with lower TERs and better alignment between what investors pay and what they receive.
Table of contents
Lower TER, higher take-home returns
SEBI has proposed a 15–20 bps reduction in TER across equity and non-equity funds, with deeper cuts at higher AUM slabs. This means investors keep more of what their funds earn, and passive vs active comparisons become more meaningful.
- Small bps today = large difference over years due to compounding.
- Encourages price discipline and efficiency across the MF industry.
Transparent statutory levies
Today, only STT on AMC fees is shown separately. SEBI proposes to show all statutory levies—STT, GST, CTT, stamp duty—outside TER. When these taxes are reduced, the benefit should flow directly to investors without delay.
- Line-item visibility builds trust and simplifies comparisons.
- Automatic pass-through when statutory rates are cut.
Brokerage cuts = fairer pricing
SEBI proposes to reduce equity brokerage on MF transactions from ~12 bps → ~2 bps and F&O brokerage from ~5 bps → ~1 bps. For investors, that’s lower friction and fewer chances of double-paying for research that’s already covered in fund management fees.
- Leaner costs improve long-term outcomes for SIP and lump-sum investors alike.
- Pushes intermediaries toward value-added, not volume-based, models.
Performance-linked TER (with guardrails)
Funds that consistently beat their benchmarks may be allowed a marginally higher TER. This rewards genuine skill and aligns costs with value delivered.
- Aligns manager incentives with investor outcomes.
- Underperformance should translate into lower fees.
Key investor takeaways
- Lower ongoing costs: 15–20 bps TER cuts compound into real money.
- Full fee clarity: Statutory levies listed outside TER = clean comparisons.
- Fairer execution costs: Brokerage bps slashed for equity & F&O legs.
- Pay for performance: Slightly higher TER only when managers truly add value—ideally on a risk-adjusted basis.
Quick FAQs
Q. Does this apply to all funds?
A. Proposals cover equity and non-equity funds, with deeper cuts at higher AUM slabs.
Q. What changes on my statement?
A. Expect clearer line items: TER vs statutory levies (STT, GST, CTT, stamp duty).
Q. Will risk-taking go up due to performance-linked TER?
A. SEBI is expected to install guardrails emphasizing risk-adjusted outperformance, not raw returns.
Disclaimer: This post is for education and investor awareness only. It is based on proposals/consultation notes and may evolve post notification. ProStocks does not provide investment advice.