Sebi slashes brokerage fees for mutual funds by half

By Admin

18 Dec, 2025

India’s capital markets regulator, the Securities and Exchange Board of India (Sebi), has announced a major overhaul of brokerage fees and disclosure norms, aiming to enhance transparency, reduce costs for investors, and strengthen regulatory oversight. The most notable move is the sharp reduction in brokerage charges that mutual funds can levy, a decision expected to reshape cost structures across the industry.

Brokerage Fee Cut in Cash and Derivatives Markets

Sebi has reduced the brokerage fee cap for mutual funds in the cash market to 6 basis points (bps) from the current 12 bps. In the derivatives segment, the limit has been slashed to 2 bps from 5 bps. Additionally, the regulator has scrapped the extra 5 bps that was earlier charged over the exit load when investors redeemed their mutual fund units.
These revised provisions will come into effect from 1 April 2026.

Why Sebi Took This Step

In October, Sebi had recommended a comprehensive overhaul of brokerage and transaction fees charged over and above the Total Expense Ratio (TER). The intent was to ensure that investors are not charged twice for the same service. Initially, the regulator had proposed cutting brokerage fee caps to as low as 0.02% for cash-market trades and 0.01% for derivatives, but the final decision reflects a more balanced approach.

Sebi chair Tuhin Kanta Pandey said the focus is on transparency and making charges more visible to investors, adding that asset management companies (AMCs) are free to offer even lower fees to attract investors.

Understanding TER and the New Cost Structure

The Total Expense Ratio represents the annual expenses charged by a mutual fund, including fund management fees, administrative costs, brokerage, and other operational charges. These expenses are deducted from fund returns, directly impacting investor earnings.

Under the new framework, expense ratio limits now referred to as base expense ratios (BER) will exclude statutory levies such as securities transaction tax (STT), commodities transaction tax (CTT), and goods and services tax (GST). The TER will now be calculated as the sum of BER, brokerage, regulatory levies, and statutory levies, making cost components clearer for investors.

Impact on AMCs and Distributors

While the move benefits investors, it is expected to squeeze the margins of asset management companies. Smaller AMCs, in particular, may face challenges in negotiating brokerage rates for block deals and research services due to their relatively lower assets under management. There is also a possibility that some of the cost pressure could be passed on to distributors.

Stock Exchanges as First-Line Regulators

Sebi has reorganized stockbroker regulations unchanged since 1992 into 11 clearer chapters. Stock exchanges will now act as first-line regulators for stockbrokers, with brokers required to report non-compliance and submit financial statements directly to exchanges. The criteria for identifying qualified stockbrokers has also been rationalized to ensure better supervision of brokers with a large active client base.

Simpler and Clearer Pre-IPO Disclosures

To improve investor understanding during public listings, Sebi has approved amendments to the Issue of Capital and Disclosure Requirements (ICDR) Regulations. A draft abridged prospectus will now be introduced at the DRHP stage, followed by an abridged prospectus at the RHP stage. This concise and standardized snapshot will help investors quickly grasp key business details, financials, and risks without wading through lengthy documents.

Pledged Shares and IPO Lock-In Rules

Sebi has also addressed operational challenges related to pledged shares during IPOs. Pledged shares will now be treated as locked in for the prescribed period, even if depositories cannot technically impose the lock-in. If a pledge is invoked, the shares will remain locked in with the pledgee for the remaining period, simplifying compliance.

Other Key Regulatory Decisions

The Sebi board approved several additional measures, including removal of the requirement for listed companies to issue Letters of Confirmation to investors, revised timelines for transferring unclaimed funds to investor protection funds, and permission for issuers of debt securities to offer incentives such as extra interest or discounts to specific investor categories like senior citizens and women.

Credit rating agencies have been allowed to rate certain financial instruments even in the absence of specific guidelines from other financial sector regulators. The threshold for High Value Debt Listed Entities has also been raised to ₹5,000 crore, easing bond issuance for select financial institutions.

Conclusion

Sebi’s decision to halve brokerage fees for mutual funds marks a significant step toward investor-friendly reforms. By lowering costs, simplifying disclosures, and strengthening regulatory oversight, the regulator aims to build greater trust and transparency in India’s capital markets. While AMCs and intermediaries may need to adjust to tighter margins, investors stand to gain from clearer, fairer, and more visible pricing structures in the long run.