Shares of asset management companies climbed as much as 8.5% on December 18, a day after the board of the Securities and Exchange Board of India (SEBI) approved changes to the mutual fund fee structure
aimed at improving transparency through a clearer break-up of costs.
The SEBI board revised the limits on brokerage paid by asset management companies to brokers and distributors, with statutory levies now excluded from these caps. The move is intended to prevent investors from being charged twice for research-related expenses. For cash market transactions, the brokerage limit has been cut to 6 basis points from the earlier 12 bps, which had included statutory levies. In the derivatives segment, the cap has been reduced to 2 bps from 5 bps, as decided at the regulator’s board meeting on December 17.
Average stock transaction costs for fund managers are expected to decline by 10–15 bps from current levels of up to 12 bps.
However, the reductions are less steep than those proposed in SEBI’s consultation paper issued in October, which had suggested cutting brokerage and transaction costs to 2 bps for cash transactions and 1 bps for derivatives. SEBI has also scrapped the additional 5-bps expense allowance charged on schemes with exit loads.
At 9:35 am on December 18, the Nifty Capital Markets index was trading 2% higher, with Nippon Life AMC and HDFC AMC gaining 6% and 4.5%, respectively. Shares of UTI AMC and ABSL AMC rose 4% and 1.7%, respectively. Recently listed Canara Robeco Asset Management Company shares surged 8.5% to Rs 312 apiece.
SEBI’s final decision on the closely watched mutual fund total expense ratios (TER) has come as a relief for fund houses and brokerages, as the regulator has reset the expense framework to a lower overall base and aligned brokerage caps closer to prevailing industry levels on a post-tax basis.
Under the revised framework, the maximum expense ratio for open-ended equity schemes with assets below Rs 500 crore has been reduced from 2.25% to 2.10%, while the ceiling for debt schemes in the same AUM bracket has been lowered from 2% to 1.85%. Overall, active equity funds will now operate within an expense ratio range of 0.95% to 2.1%, while fixed income funds will be capped between 0.7% and 1.85%, depending on asset size. For schemes managing more than Rs 50,000 crore, the cap will be 0.95% for equity schemes and 0.7% for debt schemes.
A key change is the replacement of the Total Expense Ratio (TER) with the Base Expense Ratio (BER). SEBI has kept external levies such as GST, stamp duty, Securities Transaction Tax (STT), Commodity Transaction Tax (CTT), and other statutory charges outside the BER. As a result, the BER will include only fund-level costs such as management fees, distribution brokerage and RTA charges, with taxes disclosed separately.
Global brokerage Citi said the impact of the changes is almost neutral for large asset management companies and slightly positive for mid-sized firms with higher distributor payouts. Citi added that wealth managers such as Nuvama and 360 One would see a minimal impact of less than 1% on consolidated revenue, with their shares trading 4% and 1% higher, respectively.
“Assuming no pass-through of the 5 bps equity TER cut, core earnings for listed AMCs (except CRAMC) would be affected by 8–9%. However, the 5 bps impact appears to be priced in, as listed AMC stocks had corrected by 4–5% after the release of the October 2025 discussion paper, suggesting that consensus earnings have assumed a 50% pass-through.
“Lower TER reduction of 10 bps (versus 15 bps earlier) related to GST on management fees could be neutral from a profitability standpoint for larger AMCs (top six), while it may be slightly positive for smaller AMCs. Hence, there is no material change in core earnings for the AMCs under our coverage,” PL Capital said.
