To protect investors’ interests, SEBI plans to reduce the brokerage charges from 12 bps to 2 bps for cash market transactions and 5 bps to 1 bps for derivative transactions. All other costs for execution of transaction and statutory may be charged on actual basis. | Photo Credit: istock.com
For assets under management (AUM) up to ₹500 crore, MFs can charge 2.5 per cent for active funds and 2 per cent for passive funds, and between ₹500 crore and ₹700 crore of AUM the TER is fixed at 2 per cent and 1.75 per cent for passive funds. However, the TER reduces across 3 other slabs as AUM grows. The move will hit fund houses with large AUM than smaller fund houses.
2. What are the changes in brokerage fees?
The Securities and Exchange Board of India (SEBI) has proposed to tighten the limits on Brokerage and Transaction charges. AMCs are allowed to charge brokerage and transaction up to 0.12 per cent of trade value in cash market transactions and 0.05 per cent on derivatives transactions.
SEBI said the brokerage paid by AMCs for arbitrage funds is generally lower than that of other schemes. The high brokerage charges on non-arbitrage funds can be attributed to services other than trade execution, which may include research. Due to such bundled service arrangements, investors may often end up paying twice for the research under TER, and management and advisory fees.
So, to protect investors’ interests, SEBI plans to reduce the brokerage charges from 12 bps to 2 bps for cash market transactions and 5 bps to 1 bps for derivative transactions. All other costs for execution of transaction and statutory may be charged on actual basis.
3. What are the expected impact of the proposed changes on AMCs and brokers?
A reduction in TER will hit profit margin of AMCs and force them to reduce expenses. The move is expected to reduce TER by 15-20 bps across schemes and this will straight away add to investors’ returns. Brokerages will be more impacted by this than the fund houses. However, the sharp growth in AUM may lead to more trading and higher income for brokerages. They can also minimise the impact on margins by adding research as a separate service and charge for it separately.
4. From an investors’ perspective, what will be the impact of lower TER on ₹1 lakh investment in equity schemes?
The SEBI has proposed a direct cut of 15 bps across the existing slabs for equity schemes. For instance, the current TER for equity schemes with an AUM above ₹50,000 crore is 1.05 per cent, which under the new proposal would be reduced to 0.90 per cent, marking a 15-bps drop. In addition, SEBI has proposed to remove the extra 5 bps that AMCs were previously allowed to charge investors on exit loads. Overall, we can expect an effective TER reduction of 15–20 bps, plus 10 bps from lower transaction costs. For example, a ₹1,00,000 investment with a 1 per cent TER (₹1,000) could now cost around ₹800–₹850. AMCs are still currently evaluating the overall impact, said Vinayak Magotra, Product Head & Founding Team at Centricity WealthTech.
4. Why has SEBI made the changes ?
The SEBI’s move aims to simplify rules, boost transparency and lower overall costs for unit holders. The proposals target to promote ease of compliance and to bring regulatory clarity. In 2023, SEBI had issued a similar consultation paper to lower TER and brokerage fees, but it did not yield any results. However, this time around, the market regulator has claimed that it had included the feedback received on earlier consultation paper issued on the same subject.
5. What are the industry participants saying about it?
Mutual funds are confident of absorbing the additional cost burden by cutting the commission paid to the distributors and improving the operational efficiency. Moreover, the AUM of the industry has been raising steadily in the last few years and this should bring down the cost of operations for fund houses.
Published on November 4, 2025
