The Securities and Exchange Board of India (SEBI) has issued a revised circular on total expense ratios (TER) for mutual fund schemes, further reducing the maximum expense ratios that fund houses can charge investors. The revision follows SEBI's ongoing effort to make mutual fund investing more cost-effective, building on the landmark TER reduction of 2018.
Key Changes in the New TER Structure
Under the revised framework, equity-oriented schemes with assets under management (AUM) exceeding 50,000 crore will see their maximum TER drop from 1.05% to 0.90%. For the 10,000-50,000 crore AUM slab, the ceiling moves from 1.30% to 1.15%. Debt schemes see a proportionate reduction. The new slabs are designed to pass on economies of scale to investors as the Indian mutual fund industry's total AUM has grown beyond 70 lakh crore.
Index funds and ETFs, which already operate at lower TER levels, will see a modest reduction with the maximum capped at 0.20% for equity index funds with AUM above 10,000 crore. This further narrows the cost advantage of direct stock investing over passive funds.
Impact on Your Returns
A reduction of 0.15-0.20% in TER may appear small, but its compounding impact over long horizons is substantial. On a 1 lakh monthly SIP running for 20 years at an assumed 12% gross return, a 0.15% TER reduction translates to approximately 3.8 lakh more in your corpus at maturity. For larger portfolios, the absolute savings are proportionally greater.
The revision also incentivises fund houses to grow AUM organically rather than through new fund offers (NFOs), since larger schemes now face tighter expense constraints. This indirectly benefits existing investors by reducing the proliferation of redundant schemes.
What Investors Should Do
Review your existing mutual fund portfolio and check whether you are in direct plans. The TER difference between regular and direct plans ranges from 0.5% to 1.0%, which dwarfs the slab revision. If you are still investing through regular plans via distributors, the switch to direct plans remains the single most impactful cost reduction available to you.
For new investors, this revision makes systematic investing through mutual funds even more attractive compared to traditional instruments like FDs and endowment policies, where embedded costs are often opaque and significantly higher.
Source
SEBI Circular SEBI/HO/IMD/IMD-I/P/CIR/2026/012