Did SEBI cut mutual fund expense limits under the 2026 regulations?

Yes. Across most active equity and hybrid AUM slabs, statutory expense caps were reduced by approximately 10 to 15 basis points (for example, the first ₹500 crore tier dropped from 2.25% to a 2.10% Base Expense Ratio). However, because statutory levies and transaction brokerage were unbundled and moved outside the cap, headline Total Expense Ratios (TER) may appear similar or higher depending on market trading turnover.

Why does my mutual fund’s TER look higher in 2026 even though base fees fell?

Prior to April 2026, most statutory taxes and transaction levies were absorbed within a single bundled expense ratio. Under the 2026 framework, statutory levies (STT, GST, stamp duty, SEBI turnover charges) and brokerage are billed on actuals on top of the Base Expense Ratio (BER). If a fund trades actively, these unbundled actual levies expand the reported TER even though the AMC's core management fee decreased.

Is Goods and Services Tax (GST) still charged on fund management fees?

Yes. GST continues to apply on AMC investment management and advisory fees. Under Regulation 65 of the SEBI (Mutual Funds) Regulations, 2026, GST has been explicitly unbundled from the BER cap and is passed through into the scheme’s daily TER on actuals.

Which metric should I use to compare two mutual funds: BER or TER?

It depends on what you are evaluating. To compare the management costs and pricing competitiveness of the Asset Management Companies, compare Base Expense Ratio (BER) against BER within the same AUM tier. To measure the true, all-inclusive economic drag on your net returns, evaluate the Total Expense Ratio (TER).

Did the statutory brokerage cap fall by half from 12 bps to 6 bps?

Not on a like-for-like basis. Under the 1996 rules, the 12 bps cash-market brokerage cap was inclusive of statutory taxes and exchange fees, yielding an effective broker remuneration of roughly 8.59 bps. The 2026 rule sets a clean 6 bps brokerage cap excluding levies. The real economic reduction is approximately 2.59 bps (from ~8.59 bps to 6.00 bps).

Where can I verify my mutual fund scheme's exact BER and levy breakdown?

You can inspect the mandatory monthly expense disclosures and notice-cum-addenda published on your AMC’s official website, the Association of Mutual Funds in India (AMFI) daily TER portal, and the scheme's monthly factsheet.

Personal Finance

BER vs TER (SEBI Mutual Funds Regulations, 2026): Why a Fund’s Expense Ratio Can Look Higher After 1 April Even Though Base Costs Fell

Under the SEBI (Mutual Funds) Regulations, 2026 effective 1 April 2026, the statutory expense cap now applies to Base Expense Ratio (BER), with brokerage and statutory levies unbundled. Here is the math, audit guide, and comparability rules.

ByShiv Kukreja

Founder · CFP · CFA Level II Candidate

25 October 2026·Updated 25 October 2026•9 min read

BER vs TER (SEBI Mutual Funds Regulations, 2026): Why a Fund’s Expense Ratio Can Look Higher After 1 April Even Though Base Costs Fell

Open your mutual fund’s latest monthly factsheet or portfolio statement, and look closely at the expense ratio column. If the percentage figure printed on the page is higher than what you saw last year, it is natural to assume that fund management has become more expensive.

That conclusion is almost certainly an optical illusion.

As of 25 October 2026, the SEBI (Mutual Funds) Regulations, 2026 have been in full statutory force since 1 April 2026, officially replacing the three-decade-old 1996 framework. Detailed guidelines published on SEBI’s Official Portal and reflected across AMC notice-cum-addenda have fundamentally re-architected how mutual fund fees are defined, capped, and disclosed.

Under the reformed architecture, the statutory ceiling no longer applies to the headline Total Expense Ratio (TER). Instead, the regulatory cap applies exclusively to the Base Expense Ratio (BER), while transaction brokerage, statutory taxes, and regulatory levies are unbundled and billed on actuals.

Comparing a post-April 2026 TER directly with a pre-April 2026 TER is comparing two mathematically distinct numbers. Below is the statutory breakdown of the reform, the arithmetic of the unbundling, real rupee simulations over a 15-year horizon, and a five-step audit framework for retail investors.

1. What Changed, and When

The transition from the legacy 1996 framework to the 2026 regulations followed a structured regulatory timeline:

Date	Statutory Milestone & Regulatory Event
17 December 2025	The SEBI Board formally approved the comprehensive overhaul of the Mutual Funds Regulations and direct expense caps.
14 January 2026	Gazette Notification SEBI/LAD-NRO/GN/2026/294 published, formally enacting the SEBI (Mutual Funds) Regulations, 2026.
1 April 2026	Regulations and the revised Master Circular took operational effect; AMCs published statutory notice-cum-addenda unbundling fee structures.
7 July 2026	Follow-up amendment regulations notified, refining disclosure templates and portfolio trading reporting standards.

The Statutory Definition of BER

Under Regulation 65 of the 2026 Regulations, Base Expense Ratio (BER) is defined as the investment and advisory fees charged to the scheme by the Asset Management Company (AMC), combined with recurring operating expenses (custody fees, registrar and transfer agent charges, trustee fees, audit fees, and marketing costs).

Critically, BER strictly excludes:

Goods and Services Tax (GST) on management and advisory fees.
Securities Transaction Tax (STT) and Commodities Transaction Tax (CTT).
Stamp duty, exchange turnover fees, and SEBI regulatory turnover charges.
Transaction brokerage incurred while executing portfolio trades.

2. The New Arithmetic: Deconstructing TER

The new formula governing investor expense disclosures is additive:

Total Expense Ratio (TER) = Base Expense Ratio (BER) + Cash/Derivatives Brokerage + Statutory & Regulatory Levies

All statutory and regulatory levies (STT, GST, stamp duty, exchange clearing charges) are charged on actuals. They sit strictly over and above the BER cap and above the permissible brokerage limits.

Scheme Category / Parameter	Before 1 April 2026 (Bundled Cap)	From 1 April 2026 (Unbundled BER Cap)
Open-Ended Equity (First ₹500 crore AUM)	2.25% (levies largely bundled inside)	2.10% BER (levies unbundled)
Other Open-Ended Schemes (First ₹500 crore)	2.00%	1.85% BER
Open-Ended Equity (Next ₹250 crore)	Progressive slab schedule	1.90% BER
Open-Ended Equity (Above ₹50,000 crore)	Progressive slab schedule	0.95% BER
Index Funds and ETFs	1.00%	0.90% BER
Close-Ended Equity Schemes	1.25%	1.00% BER
Fund of Funds (>65% in equity schemes)	2.25%	2.10% BER
Cash Market Brokerage Limit	12.00 bps nominal (~8.59 bps net of levies)	6.00 bps (clean brokerage, excluding levies)
Derivatives Brokerage Limit	5.00 bps nominal (~3.89 bps net of levies)	2.00 bps (clean brokerage, excluding levies)
Additional 5 bps B-30/Exit-Load Allowance	Permitted under legacy circulars	Permanently Discontinued

The Truth About the Brokerage Cut

Industry headlines frequently reported that SEBI halved cash-market brokerage from 12 bps to 6 bps. That comparison is flawed.

The old 12 bps limit was a gross cap that forced brokers to absorb GST, STT, and exchange turnover fees inside the 12 bps, leaving an effective broker commission of approximately 8.59 bps. The new 6 bps limit is pure broker remuneration, with all taxes billed separately. On a true like-for-like basis, broker compensation fell from ~8.59 bps to 6.00 bps—a reduction of 2.59 bps, not 6.00 bps.

3. The Comparability Trap: Why TER Can Mislead

Because costs that were previously buried in trading accounts or bundled into gross slabs are now itemised, retail investors encounter three subtle behavioral traps:

TER Can Rise While AMC Charges Fall: An AMC investor-education disclosure illustrated this clearly: an institutional scheme with a rock-bottom BER of 0.20% incurred 0.10% in trading brokerage and 1.03% in statutory transaction taxes, resulting in a reported TER of 1.37%. To an untrained eye, the fund looked expensive; in reality, government levies represented 75% of the total cost while the AMC retained just 0.20%.
TER Fluctuates with Market Volatility: Under the old framework, monthly TER was largely static. Today, because brokerage and statutory levies are booked on actuals, a scheme managing sudden portfolio rebalancing during high volatility will see its TER fluctuate from month to month.
Fiscal Tax Changes Pass Through Instantly: Previously, if the government raised STT or exchange fees, AMCs had to absorb the cost within the statutory cap. Today, any hike in STT or GST passes directly into the daily NAV via the unbundled TER without altering the AMC's BER.

[!TIP] The Two-Lens Rule: Use Base Expense Ratio (BER) when evaluating what the AMC charges to manage your capital. Use Total Expense Ratio (TER) when estimating the all-in frictional drag against your net compound return.

Investment analysis desk with mutual fund expense documentation and portfolio reports

4. Worked Rupee Math: How Fee Splits Flip Scheme Rankings

To understand why looking at only one metric can lead to poor capital allocation, consider an investor committing a ₹10,00,000 lump-sum for 15 years in two competing equity schemes within the same peer group:

Baseline Parameters

Lump-Sum Investment: ₹10,00,000
Investment Horizon: 15 years
Underlying Portfolio Gross Return: 12.00% per annum (identical across both schemes)
Scheme P (Active Trading Strategy): BER of 1.40% + Brokerage & Levies of 0.18% = TER of 1.58%
Scheme Q (Buy-and-Hold Low-Turnover Strategy): BER of 1.45% + Brokerage & Levies of 0.05% = TER of 1.50%

Core Mathematical Formula

Corpus Value = Investment Outlay × (1 + Gross Return − Expense Drag)^15

Simulation 1: Evaluated on All-In TER (Actual Investor Wealth)

Scheme P (1.58% TER): Net annual return = 12.00% − 1.58% = 10.42%
Final value: ₹10,00,000 × (1 + 0.1042)^15 = ₹44,22,992
Scheme Q (1.50% TER): Net annual return = 12.00% − 1.50% = 10.50%
Final value: ₹10,00,000 × (1 + 0.1050)^15 = ₹44,71,304
Net Wealth Difference: Scheme Q outperforms by ₹48,312 over 15 years because its low-turnover strategy minimised transaction levies.

Simulation 2: Evaluated on AMC Base Fee (BER Alone)

Scheme P (1.40% BER): Net annual return = 12.00% − 1.40% = 10.60%
Final value: ₹10,00,000 × (1 + 0.1060)^15 = ₹45,32,386
Scheme Q (1.45% BER): Net annual return = 12.00% − 1.45% = 10.55%
Final value: ₹10,00,000 × (1 + 0.1055)^15 = ₹45,01,748
Net Base Difference: Scheme P appears cheaper by ₹30,638 based on AMC management fees alone.

[!IMPORTANT] The Ranking Reversal: The two schemes flip rank depending on which figure you inspect. Scheme Q delivers ₹48,312 more take-home wealth because of lower portfolio turnover, even though Scheme P boasts a lower AMC management fee. Neither number is incorrect, but TER captures what you actually bear, while BER measures what the fund manager pockets.

What 12 Basis Points Really Costs

On a ₹10,00,000 investment over 15 years at 12% gross returns, an expense difference of just 12 bps (0.12%) compounds into an absolute wealth gap of ₹87,311 (₹54.73 lakh at zero cost vs ₹53.86 lakh at 0.12% TER).

5. A Five-Step Like-for-Like Audit Framework

Before making switching or redemption decisions based on factsheet expense ratios, follow this five-step audit:

Locate Disaggregated Disclosures: Open your AMC’s statutory disclosure webpage and extract the scheme’s Base Expense Ratio (BER) and Total Expense Ratio (TER) separately. If your factsheet only displays TER, download the monthly scheme portfolio addendum.
Review the April 2026 Notice-cum-Addendum: Examine the specific addendum issued by your fund house on 1 April 2026 to verify how your scheme’s historical bundled slab was recast into the new BER limit.
Compare BER Exclusively Against Peer BERs: When assessing whether an AMC is charging competitive management fees, compare BER with BER across identical asset-size tiers (e.g. funds in the ₹5,000–₹10,000 crore bracket).
Isolate the Transaction Levy Footprint: Audit the gap between TER and BER. A spread wider than 15–20 bps typically indicates high portfolio turnover, rapid churning, or extensive derivative hedging.
Enforce Strict Plan Symmetry: Never compare a Direct Plan against a Regular Plan. Direct Plans exclude distributor commissions and will inherently report a BER 50 to 100 bps lower than their Regular counterparts.

6. What Lies Ahead: The Forward Watchlist

Over the next twelve months, mutual fund investors should monitor six evolving regulatory developments:

Evolving Parameter	What to Monitor	Direct Impact on Your Portfolio
Statutory Tax Adjustments	Union Budget revisions to STT, CTT, GST, or stamp duties.	Any tax revision bypasses the BER cap and flows immediately into daily TER on actuals.
Performance-Linked Expense Ratios	AMC filings introducing performance-fee sharing structures under SEBI guidelines.	Higher base fees during market outperformance, offset by lower fees during underperformance.
Daily and Monthly TER Volatility	Frequency of portfolio turnover disclosures on AMC websites.	Monthly TERs will fluctuate based on active fund manager repositioning.
Consolidated Regulatory Amendments	Ongoing circulars following the 7 July 2026 amendment.	Further standardization of derivative transaction cost accounting.
AUM Threshold Transitions	Rapidly growing funds crossing intermediate AUM milestones.	Crossing ₹500 cr, ₹750 cr, or ₹2,000 cr triggers automated downward adjustments to statutory BER caps.
First Annual Audit Reports (FY 2026-27)	Publication of full-year audited fund balance sheets in mid-2027.	The first comprehensive 12-month data demonstrating how unbundled levies behaved across market cycles.

7. What We Do Not Know Yet

While the regulatory framework is operational, several practical market dynamics remain under industry evaluation:

Performance-Linked Adoption: The exact hurdles, high-watermark standards, and clawback mechanisms that individual AMCs will adopt once performance-linked fee structures roll out commercially.
Absorption of the Extinct 5 bps Exit Charge: How fund houses with grandfathered exit-load pools have absorbed the elimination of the 5 bps discretionary allowance across smaller schemes.
Annual Levy Volatility Range: The full-year variance range of statutory levies across extreme bull and bear market regimes.
Mid-Tier Slab Details: Granular AMC pricing strategies across intermediate AUM tranches between ₹750 crore and ₹50,000 crore.

8. What This Does NOT Mean

To avoid common investor misinterpretations:

It does NOT mean mutual funds got more expensive: Costs previously absorbed within gross caps or buried in brokerage ledgers have simply been rendered visible and itemised.
It does NOT mean transaction taxes are a new expense: You were always paying STT and stamp duty indirectly via reduced trading NAVs; they are now transparently declared on factsheets.
It does NOT mean the lowest TER fund is automatically superior: A fund manager with slightly higher turnover who generates 300 bps of consistent risk-adjusted alpha easily justifies a 10 bps levy differential.
It does NOT eliminate the Direct vs Regular distinction: The structural spread between Direct and Regular plans remains entirely intact, representing distributor trail commissions.

Sources & Regulatory References

Disclaimer: This article is for educational and informational purposes only and does not constitute financial, investment, legal, or tax advice. Mutual fund investments are subject to market risks; read all scheme-related documents and statutory addenda carefully before investing.