Indian retail investors are putting more money than ever into mutual funds through monthly plans, and the fees they pay on it now run under a structure set by the Securities and Exchange Board of India: a "base expense ratio" that caps the largest equity funds at 0.95% a year and index funds and exchange-traded funds at 0.90%, with taxes and levies charged separately on top.

The numbers explain why the fee line matters. Systematic investment plans, or SIPs, drew a record Rs 32,490 crore in September, up from Rs 32,297 crore in August, according to Association of Mutual Funds in India data reported by Angel One. About 63 lakh new SIPs were registered in the month, and SIP assets stood at Rs 17.86 lakh crore. On that base, a 0.10 percentage point difference in annual fees works out to roughly Rs 1,786 crore a year across the industry. Capital Times covered the record September SIP figures when they were released. AMFI's October report is due in the coming days.

How SEBI's base expense ratio works

SEBI's board approved the overhaul at its Dec. 17, 2025, meeting as part of a rewritten rulebook, the SEBI (Mutual Funds) Regulations, 2026, which replaces rules dating to 1996, according to The Week and Gulf News. The regulator said the rewrite cut the length of the regulations by 44%.

The main change is in how fees are counted. Before, the cap on a fund's total expense ratio included statutory charges. Under the new system, the cap applies only to the fund house's own charges, called the base expense ratio. Government and market levies, including goods and services tax, stamp duty, securities transaction tax, exchange fees and SEBI fees, are passed through at actual cost, Gulf News reported.

So the figure an investor sees on a fund factsheet now breaks into three parts:

• the base expense ratio, which is capped;
• brokerage paid by the fund when it trades, also capped;
• statutory levies, charged at actual cost.

Added together, they make up the total expense ratio, which is what is deducted from the fund's net asset value each day.

The new caps, fund by fund

The caps for the largest schemes, those with more than Rs 50,000 crore in assets, are lower than under the old regime, according to Gulf News:

• Equity schemes: 0.95%, down from 1.05%.
• Non-equity schemes of the same size: 0.70%, down from 0.80%.
• Index funds and ETFs: 0.90%, down from 1.00%.
• Funds of funds that invest in equity-oriented schemes: 2.10%.

Smaller funds may charge more, because the permitted base ratio falls as a scheme's assets grow, The Week reported. SEBI also cut what funds can pay brokers. Brokerage on cash-market equity trades, net of levies, is capped at 6 basis points, down from an effective 8.59 basis points, and brokerage on derivatives trades at 2 basis points, according to Gulf News. The regulator also removed an extra 5 basis point allowance that funds with exit loads had been allowed to charge, which it had described as a transitional measure.

SEBI estimated that average fund charges would fall by 10 to 15 basis points, Gulf News reported.

Two cautions apply. First, the caps are ceilings, not prices. Many direct plans and passive funds already charge well below them, so the cap does not tell an investor what a given fund costs. Second, because levies now sit outside the cap, the total expense ratio on a factsheet can be higher than the base figure. Comparing the base ratio of one fund with the total ratio of another gives a misleading result.

What SIP investors can check this month

For an investor running a monthly SIP, three checks follow from the rules.

The first is which plan the money goes into. Direct plans carry no distributor commission, while regular plans do, and both sit under the same caps. The fund factsheet shows the expense ratio for each.

The second is where new money is flowing. September's inflows leaned heavily toward smaller companies. Small-cap funds took about Rs 9,039 crore, mid-cap funds about Rs 7,835 crore and flexi-cap funds about Rs 6,702 crore, against about Rs 859 crore for large-cap funds, according to AMFI figures compiled by Equentis. Total net inflows into equity funds rose about 31% from August to about Rs 38,307 crore, even as industry assets fell 5.1% to Rs 82.64 lakh crore as debt funds lost about Rs 1.83 lakh crore. Active small-cap funds sit at the higher end of the fee range; index funds and ETFs face the tighter 0.90% base cap.

The third is how fees compare with the costs of trading directly. SEBI's earlier curbs on futures and options, which raised the minimum size of index derivative contracts to Rs 15 lakh from Nov. 20, 2024, and required upfront collection of options premiums from Feb. 1, 2025, were followed by a drop of about 20% in retail options premium traded, according to a Kotak Institutional Equities report cited by Outlook Money. SEBI data cited in the same report showed retail traders lost a combined Rs 1.81 lakh crore in futures and options between March 2021 and 2024.

The next figure to watch is AMFI's October report, which will show whether the SIP run held above Rs 32,000 crore and whether small-cap funds kept their lead in new equity money.