Mutual Fund Expense Ratio: SEBI Limits and the Direct Plan Rule

A mutual fund’s expense ratio is the yearly cost of running the scheme, as a percentage of its assets, deducted from the NAV daily. Since 1 April 2026, SEBI caps an active equity fund’s base expense ratio (BER) at 2.10% on its first ₹500 crore. Every scheme’s direct plan must cost less than its regular plan, because it pays no distributor commission.

Mutual fund expense ratio: key facts

How the expense ratio works

The fund house does not send you a bill. It takes the cost out of the scheme’s assets a little each day, so the NAV you see is already net of expenses.

Say you hold ₹1,00,000 in a scheme with a 1.50% TER. You pay about ₹1,500 a year, or roughly ₹4.11 a day, in lower NAV. Returns published for a scheme are after these costs.

Under the 2026 rules, the fund house cannot charge you anything beyond the BER, brokerage, transaction costs, statutory levies and any exit load. If costs run above the limits, the fund house, trustees or sponsor must bear the excess.

SEBI expense ratio limits by scheme size

For open-ended active schemes, the cap falls as the scheme grows. Each slab applies only to the assets within it.

Example. An equity scheme with ₹1,000 crore can charge up to 2.10% on the first ₹500 crore, 1.90% on the next ₹250 crore and 1.60% on the last ₹250 crore. That works out to a blended cap of 1.925%, before brokerage, transaction costs and taxes.

Funds of funds have their own caps: 0.90% for those investing in liquid, index and exchange-traded funds, 2.10% for equity-oriented ones and 1.85% for others. These caps include the underlying schemes’ costs.

What changed in 2026

If a fund house changes a scheme’s BER, it must email or text investors at least three working days before. It need not give notice when the change comes from a change in assets, or when rules force a cut.

Direct plan vs regular plan: SEBI’s rule

SEBI’s circular of 13 September 2012 required every fund house to offer a separate direct plan from 1 January 2013, for money not routed through a distributor. Its current master circular says the direct plan “shall have a lower expense ratio as no distribution commission is paid under such plan” and a separate NAV. No fee head in a direct plan may be higher, in percentage terms, than in the regular plan.

The gap adds up over time. As an illustration only, assume a scheme earns 12% a year before costs. ₹1,00,000 in a regular plan with a 1.70% TER would grow to about ₹4,35,144 in 15 years. In a direct plan with a 0.70% TER, it would grow to about ₹4,98,227. Real returns vary and are not guaranteed.

A regular plan can still suit you if you want a distributor’s help. From 1 March 2026, distributors can also earn an extra commission (1% of the first investment or first-year SIPs, capped at ₹2,000) for new investors from beyond the top 30 cities and for new women investors. It is paid from the 2 basis points of scheme assets that fund houses must set aside each year for investor education.

How to check a fund’s expense ratio

1. Open AMFI’s Total Expense Ratio of Mutual Fund Schemes page, or the fund house’s website.
2. Select the fund house and the scheme.
3. Compare the direct and regular plan figures, which are listed separately.
4. Cross-check with the scheme’s monthly factsheet, which also shows its TER.
5. Compare TER only between schemes in the same category, such as two large cap funds.

Our mutual fund screener lets you filter schemes by category. For choosing between them, see our guide on how to pick mutual funds.

Frequently asked questions

What is a good expense ratio for a mutual fund?

There is no single figure. Compare a scheme’s TER with others in its category: index funds are capped at 0.90%, while active equity schemes can charge up to 2.10% on their first ₹500 crore.

Does SEBI require direct plans to have a lower expense ratio?

Yes. Since 1 January 2013, every scheme must have a direct plan with a lower expense ratio than its regular plan, because it pays no distributor commission.

What is BER in a mutual fund?

BER is the base expense ratio under the SEBI Mutual Funds Regulations, 2026. It covers the scheme’s running costs but leaves out statutory levies and transaction costs, and SEBI’s caps apply to it.

What is the difference between BER and TER?

TER is the total you pay. It equals BER plus brokerage, transaction costs and statutory levies such as GST.

Is the expense ratio charged every year or every day?

It is an annual rate, but it is deducted from the scheme’s assets daily. The NAV already reflects it.

When could mutual funds charge an extra 0.30% for inflows from smaller cities?

Under the 1996 regulations, schemes could charge up to 0.30% more if new inflows from beyond the top 30 cities were at least 30% of gross new inflows or 15% of year-to-date average assets, whichever was higher. SEBI deleted that provision by notification of 31 October 2025.

Is there a performance-linked expense ratio in India?

The 2026 regulations allow schemes to offer a BER linked to performance. It is optional, and schemes that use it must follow the structure and disclosures SEBI sets.

Sources

• SEBI (Mutual Funds) Regulations, 2026, regulations 66 and 67 — SEBI (checked 17 Sep 2026)
• Master Circular for Mutual Funds, 20 Mar 2026 — SEBI (checked 17 Sep 2026)
• Steps to re-energise Mutual Fund Industry, 13 Sep 2012 — SEBI (checked 17 Sep 2026)
• Additional incentives to distributors for B-30 and women investors, 27 Nov 2025 — SEBI (checked 17 Sep 2026)
• Extension of timeline for the additional incentive structure, 7 Jan 2026 — SEBI (checked 17 Sep 2026)
• Total Expense Ratio of Mutual Fund Schemes — AMFI (checked 17 Sep 2026)
• Expense ratio — AMFI (checked 17 Sep 2026)
• Sebi slashes mutual fund expense ratios, culls 5 bps exit load charge, 17 Dec 2025 — The New Indian Express (checked 17 Sep 2026)