SEBI Mutual Fund New Rules 2026 Explained | Expense ratio, TER & Brokerage | CA Rachana Ranade

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[00:00:22] Hey folks, CA Rachana Ranade here and I welcome you all to a very interesting video. And interesting because this was not something that came to my mind. This is a video based on a question which was asked by one of my learners. Now, which course? The course is titled as Magic of Mutual Funds. I hope you are aware about our website rachanaranade.in as well. Here if you go to courses tab, you can see English, Marathi, all options are available. In the English section, you will see this course which is about Magic of Mutual Funds.

[00:00:51] And anyone who enrolls for any of the courses, they get an access to a WhatsApp number where course related queries can be asked and my team solves these queries. So one of the query which was asked to my team was that he was going through the course of Magic of Mutual Funds and he encountered the concept of expense ratio. And he thought that let me check the expense ratio of one of the mutual funds which is Paraparic FlexiCap Fund. And for that, he went to Ticker Tape website. Now, when he went there, he saw that on Ticker Tape, the

[00:01:21] expense ratio was 0.53%. For some reason, he also happened to check it on Coin where the expense ratio for the same mutual fund was 0.62%. And then he thought of cross-checking it with Grow. Here, for the same fund, again, the expense ratio came out to 0.69%.

[00:01:42] And that was the exact query asked that how come expense ratios can be different for different websites. So even at first sight, when I got this question, I said this should ideally not happen.

[00:01:53] Ideally, expense ratio may be 0.01%, 0.02% here and there should be okay, but such a big gap. For example, Grow 0.69% and Ticker Tape 0.53%. That's a big gap to have. So even I was not sure whether some of the websites are reporting BER versus some websites are reporting TER or not. But wait, here we encounter two problems. Number one, what is BER versus TER? We'll talk about that.

[00:02:18] And number two is that whenever there is mismatch in multiple websites, then how can I cross-check which is the correct one? And obviously, whenever in doubt, ideally, we should go ahead with the source data. For in this case, source data will be obviously Parikh Mutual Fund website, correct? Here, if I just show you again, this is on the homepage. I'll go quickly to the statutory disclosures tab and I'll just hit confirm.

[00:02:41] And here, ideally, you should see something like an expense ratio right here, total expense ratio. Now, once you check here, you will see change in BER, basic expense ratio. We're going to talk about that in the next section. But if we open this PDF, you will see that the basic expense ratio that is mentioned here for Parikh Parekh Flexicap Fund,

[00:03:00] the revised BER, effective from what? Effective from 1st April 2026 is 0.54%. Okay. And if you see, Ticker Tape 1 is pretty much close here at 0.54%. By the way, whatever explanation I'm giving, it's just a knowledge-based video. This is neither a promotion of Parikh Parekh nor a promotion of Ticker Tape nor of Grow or of Coin or anyone. This is just an information for everyone, right?

[00:03:27] So, I hope you have understood that whenever in doubt, how and where to check these expense ratios, okay? So, TER, BER, difference is what we are going to understand. But I hope where to get the source information from is absolutely clear. One more important point is that, unfortunately, no one has very clearly mentioned whether it is a TER or a BER. Everyone just writes expense ratio for coin also expense ratio and grow also expense ratio, okay? So, in the next section, immediately, we jump on TER versus BER.

[00:03:56] Now, TER is nothing but a total expense ratio versus BER is a base expense ratio. Now, what does BER or a base expense ratio include? If I am a mutual fund, let's say I'm an AMC. For an AMC, what are some basic expenses? Number one, it's about the fund management fee. I'll hire a lot of experts who will be the fund managers and who will decide on the buy-sell calls, right? So, will I have to pay money to them as a salary or whatever? Yes.

[00:04:21] So, that will be my fund management fee. If there are certain agents for regular schemes, of course, I'll have to also pay distributor commission. That will be a part of my base expense ratio. If I'm talking about RTA expenses, registrar transfer expenses, what is that? That is nothing but the fees paid for accounting for all the fund-related transactions. And ultimately, obviously, the administrative cost will have an office, will have electricity expenses and all such expenses, right? So, all these put together is base expense ratio, core operating costs only, okay?

[00:04:51] Now, earlier, only TER was disclosed. If you see, it is an all-in-one. And now, it has been split. Split as what? BER, the one that we discussed right now. Whenever a mutual fund buys any equities, are they going to pay brokerage? Yes. Will they pay GST on brokerage? Yes. Any other statutory charges? Yes. STT, stamp duty obviously will be paid. Now, from 1st of April 2026, these expenses have to be disclosed separately.

[00:05:17] But of course, now with this, you will be able to understand TER is always going to be on a higher side as compared to BER because BER is just a part of TER, right? So, it's not that the expense ratio itself has changed. It's just that the disclosure has changed. It's just that more and more disclosures have to be given. Instead of one single number, these different, different numbers have to be disclosed.

[00:05:41] But is this only about a separate disclosure or has SEBI also reduced the expense ratio for all the fund houses? Have they put a cap on maximum expense ratio that they can put? Has the cap limit been revised? And answer is yes. If I were to give you an example, you can of course pause the video and look for all the fund houses, how much expense ratio will be charged. But it's basically based on AUM, okay? Higher the AUM, the expense ratio is going to be on a lower side.

[00:06:09] So, if you see above 50,000 crores AUM. For them, old cap, earlier also there was a limit. That was 1.05% and the new cap here is that 0.95%. So, it's a reduction of 0.1% or 10 basis points. Similarly, if it's a small fund, of course, expense ratio is going to be on a higher side. This has also been reduced. The new cap has been reduced which results in a 0.15% or 15 basis points deduction, okay? So, I hope you have understood about two key changes starting 1st of April.

[00:06:38] Number one, as I mentioned, it is about the disclosure split that needs to be given, TER versus BER and second is about how much is the new cap for charging expense ratio. But are these only the changes or are there few other changes as well? Answer is absolutely yes. And that's what we are going to understand in the last section of the video. Now, let's talk about one more landmark reform which was about introduction of the performance linked fee structure which allows the asset management companies to earn more if the fund

[00:07:07] performance is better. So, is this a very good change that has been brought? Answer is obviously yes because this aims to better align fund managers incentives with the investor outcomes as well. See, investors are going to want higher returns. The fund manager will always strive to do that. But if he or she is able to get or generate an alpha, should the fund manager also be incentivized? Answer is yes. And that is exactly what has been allowed as per the reforms, okay?

[00:07:35] One more point is that what has happened is that there has been a cap that has been put on the brokerage amount that can be charged by the brokers to the mutual fund houses. See, what happened was that essentially mutual fund said, you are putting a cap on the expense ratio. So, obviously, what will happen? If expense ratio is capped, if it is lowered, will it hurt the revenues of AMC? Answer is yes. Agreed. But then SEBI has said, okay, no problem. Your revenues are reducing. Now, what will ensure your expenses also reduce?

[00:08:05] So, that is the reason why they said we will lower your brokerage cost. And for equity, the brokerage has been now capped at 0.06%. That is six basis points. And for derivatives, it has been capped at 0.02% or two basis points, okay? Now, with all these changes coming in that we discussed right now, let's understand who benefits, whether it is an investor that benefits, AMCs that benefit or brokers that benefit in different, different perspectives. Let's understand quickly one by one. The very first one is expense ratio decrease.

[00:08:34] Who is it going to be better for? Obviously, investors will be happy. Not good for the AMCs because their revenues can reduce a lot. For wherever it is, any not applicable, we are not going to discuss, okay? More transparent disclosures. Of course, good for the investors. Nothing much change for the AMCs. It's just that more disclosures have to be given. For brokerage fees capped. Will it be good for investors? Yes, because ultimately, if AMCs will have a reduced trading expense, that will obviously be better beneficial even for the mutual fund investors.

[00:09:03] But it's going to be bad for the brokers. Ultimately, one more point that we discussed, performance linked incentives, good for both because even investors want more returns. And if AMCs, fund managers are able to generate that, they also get some incentives. But what is the last point is that ultimately because of all these changes, ideally, the volumes can improve in mutual funds with a lower expense ratio. Ideally, returns can be more. With incentives to the fund manager, the returns could be more. Just I'm saying ifs and buts, okay?

[00:09:33] Possibility, yes. And with this, the volumes can also increase and which can ultimately benefit the stock broking companies. I hope you have found a lot of value in today's video. See one small question from one of my learner and it led to a nice video which explains such an important concept. So whatever doubts you have about mutual funds, happy to answer. You can drop that in the comment section. Me and my team will try our level best to answer your queries. I hope you enjoyed this one. If you did, please don't forget to smash the like button. Please don't forget to share this video with your friend.

[00:10:03] I'll see you in the next one. Until then, take care. Jai and bye-bye. I'll see you in the next one. I'll see you in the next one. Thank you.