SEBI's New TER Norms Explained: Everything You Need to Know.

SEBI has notified the SEBI (Mutual Funds) Regulations, 2026, a complete rewrite of the mutual fund rulebook that comes into effect from 1 April 2026.

A big part of this overhaul is a new expense framework that changes how Total Expense Ratio (TER) is defined, disclosed, and capped for mutual funds.

For investors, it’s being sold as “TER cut”, but for distributors and AMCs, this is a structural change in how costs, brokerage, and GST get shared.

What exactly has SEBI changed?

1. TER has clear components instead of one bundled number. 

Under the 2026 regulations, TER is no longer one bundled number with everything thrown in.SEBI now defines TER as the sum of three clearly separated components: a Base Expense Ratio (BER), brokerage/commissions, and statutory/regulatory levies like GST, STT, CTT, stamp duty, and SEBI or exchange fees.

In simple terms:

• Earlier: 1.5% TER looked like “all-inclusive”: AMC fee, distribution commission, brokerage, GST, STT, stamp duty, etc., all inside the cap.

• Now: the cap applies to the BER only, while brokerage and unavoidable government/market levies sit on top and are shown separately to investors.

This “unbundling” is meant to improve transparency and prevent the same services or levies being charged twice under different heads.

2. Expense limits have been trimmed and rationalised

SEBI has marginally reduced the permissible base expense caps across multiple scheme categories.

Examples from the new framework:

• Caps for several categories, including index funds, ETFs, fund-of-funds, and closed-ended equity schemes, have been lowered by around 10–15 basis points at various AUM slabs.

• The extra 5 bps expense that schemes could charge if they had an exit load has been removed.

Net-net, the “headline” expense number on factsheets should look slightly lower, even though part of that is because taxes and levies have been moved out into separate lines.

3. Brokerage and transaction cost limits are tighter

Brokerage caps have been rationalised so that investors aren’t effectively paying twice - once via brokerage, again via research or other bundled services.

Key changes:

• In the cash market, the effective brokerage limit falls to around 6 bps from higher effective levels earlier, even though this is a bit higher than SEBI’s initial proposal.​

• In derivatives, the ceiling is up to 2 bps vs earlier effective caps near 4 bps.​

This compresses the “pool” from which AMCs fund distribution commissions and other selling costs.

4. GST and statutory levies on actuals, outside the cap

Another important change: GST and other statutory levies related to management and brokerage will now be charged on actuals, over and above the base expense ratio.

Earlier, many of these taxes sat inside the overall TER cap, which meant AMCs often “absorbed” part of them within the same number.

So, what has really changed for MFDs?

hile showing taxes separately; the way trail commission is computed and paid will change for everyone, especially for MFDs empanelled directly with AMCs.

1. GST on brokerage is now clearly over and above

Consider an example: a flexicap scheme paying a trail of 0.7% on a ₹1 lakh investment.​

• Earlier: The ₹700 brokerage paid to the MFD typically included GST; the gross amount inside the TER cap covered both the commission and the tax on that commission.

• Under the new framework, GST on brokerage is a separate line item on actuals, outside the BER cap.

If AMCs simply add GST on top of the existing brokerage, their all-in cost could breach the tightened expense limits or squeeze margins.The more likely outcome in many cases is that AMCs will recalibrate brokerage grids so that net cost stays within the framework, effectively reducing the cash that finally lands with MFDs by roughly the GST portion (around 15-18% of what they were used to receiving).

2. Removal of an extra 5 bps adds another small cut

Earlier, schemes with exit loads could charge an additional 5 bps in TER as a transitional benefit; that buffer has been removed. This further shrinks the distributable “headroom” AMCs had to fund higher trail payouts or promotional brokerage slabs.

3. Smaller, standalone MFDs are most exposed

Larger distributors and platforms typically negotiate at scale, have better visibility into AMC-level economics, and can adapt faster to new grid structures.Individual MFDs working directly with multiple AMCs, already stretched on operations and compliance, will now also have to navigate:

• New brokerage/commission slabs and renegotiated rates

• Possible delays or confusion in RTA communication and payout structures

• More complex reconciliation with GST break-outs and statutory levies

This can easily look like an immediate 15-20% haircut on income for MFDs who only work directly with AMCs and are non-GST registered, at a time when acquisition costs and service expectations are rising.

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Why this shift may ultimately favour advice-led MFDs

There are three structural positives for serious, advice-led MFDs who think in 5–10 year horizons.​

1. Higher transparency builds trust with investors: Investors will finally see what they are paying for fund management, for distribution, and for taxes, instead of one opaque number. This strengthens the case for MFDs who can clearly articulate their value in terms of asset allocation, behaviour coaching, and goal-based planning.

2. Slightly lower all-in costs improve long-term outcomes: Even a 3-5 bps reduction in true all-in costs, compounded over long periods, meaningfully improves investor outcomes and therefore client satisfaction.​Happier clients are more willing to consolidate assets and refer friends and family - both of which directly benefit distributors who stay the course.

3. Distribution will consolidate around scalable, tech-enabled models: Tighter cost structures make it harder to run high-friction, manual, single-person practices spread across dozens of AMCs.Models that combine human advice with efficient technology, centralised operations, and platform-level negotiation power will become the norm rather than the exception.
   

This is exactly the gap AssetPlus has been building for over the past few years.

How being on AssetPlus can soften the TER blow for MFDs

1. Platform-led structuring reduces direct grid shocks

MFDs working through a platform like AssetPlus are less likely to see a direct hit on their take-home due to the GST-on-brokerage change, compared to those dealing one-on-one with AMCs.​That’s because the platform acts as the primary counterparty for AMCs and RTAs, and can restructure commercial terms centrally while maintaining a stable share for individual partners where possible.

For a new or mid-sized MFD, this means:

• You don’t have to renegotiate 20-30 empanelments on your own.

• You are insulated from at least part of the volatility in how each AMC responds to the new norms.

  
  

2. Aggregated scale improves negotiating power

AssetPlus already works with thousands of MFDs and a large base of end-investors, effectively pooling flows across partners. That scale allows the platform to have more meaningful conversations with AMCs on trail structures, slab grids, and promotional campaigns than a standalone individual distributor typically can.​

If AMCs are cutting gross commissions to adjust for the new expense rules, partners plugged into a large platform are better placed to still secure competitive net payouts versus going solo.

3. Tech and operations support offset margin compression

SEBI’s new regulations also tighten governance, disclosure, and trustee oversight, which indirectly raises the cost of doing business for everyone in the chain.AssetPlus’s B2B model is explicitly designed to take away much of the operational and compliance burden from MFDs so they can focus on client work.

Typical areas where AssetPlus adds leverage:

• Centralised transaction processing, reconciliations and reporting across AMCs

• Ready-made digital onboarding and KYC journeys for clients

• Portfolio analytics, review reports and communication templates that MFDs can brand and use directly

When your gross trail is under pressure, shaving hours off manual operations is a direct boost to your net profitability.

4. Training, content and business development in a tougher environment

As SEBI’s framework nudges distribution towards more professional, advice-first models, MFDs have to up their game on knowledge, communication and client engagement.AssetPlus invests in training, playbooks and marketing support tailored to MFDs - helping them move from “product sellers” to long-term advisors.

In other words, while the new TER norms may trim the top line, a platform like AssetPlus helps protect and even improve the bottom line by:

• Reducing income volatility vs direct AMC models

• Lowering per-client operating cost

• Enhancing productivity and client stickiness

Want to know more, reach out to us for a free consultation at communication@assetplus.io