Sebi slashes broker fees for mutual funds by half

Extra levy on exit load scrapped; criteria to identify qualified brokers simplified

- Apoorva Ajith

The capital markets regulator has slashed the brokerage fees that mutual funds can charge and approved new rules to simplify public-listing disclosures, among other measures, to protect retail investors and improve compliance.

The Securities and Exchange Board of India (Sebi) cut brokerage costs that mutual funds can charge investors to 6 basis points (bps) from the current 12 bps in the cash market, according to the decisions announced after the regulator's board meeting on Wednesday. For the derivatives segment, brokerage limits have been reduced to 2 bps from the current 5 bps.

The Sebi board also scrapped the additional 5 bps charged over the exit load or the fee levied when investors redeem investments.

One basis point is one-hundredth of a percentage point.

The revised provisions are effective 1 April 2026.

In October, the market regulator had recommended an overhaul of brokerage and transaction fees that investors pay over and above the total expense ratio (TER), to ensure that unitholders are not charged for the same service twice.

Sebi had suggested cutting brokerage fee cap from 0.12% to 0.02% for cash-market trades and from 0.05% to 0.01% for derivatives.

The TER represents the annual expenses a mutual fund levies, covering fund management fees, administrative costs, broker and other operational charges. It is deducted from the fund's returns, affecting investors' earnings.

Expense ratio limits, to be called base expense ratios (BERs) now, will exclude all statutory levies such as securities transaction tax (STT), commodities transaction tax (CTT), and goods and services tax (GST).