You open your mutual fund factsheet and notice the expense ratio changed after April 1, 2026. In some funds, it even looks higher. Your first thought is: Am I paying more, and will this lower my returns?

Have you ever wondered why a fund’s expense ratio sometimes jumps or looks different from one day to the next? Recently, mutual funds started showing certain trade-related costs inside their disclosed TER. Those costs were always coming out of the NAV, but now they’re visible in the TER too, which can make the headline number appear higher or more variable than before.

Here’s what changed and why it matters, how to compare BER and TER, and what these changes mean for your returns.

What Are the SEBI Expense Ratio Changes in 2026?

Every mutual fund charges expenses to run the scheme. These expenses are adjusted in the NAV, so you do not pay them separately.

SEBI’s 2026 changes are two linked updates:

TER reporting is now shown as a clearer breakup that includes BER, brokerage, transaction costs, and statutory levies.
Caps were revised for what AMCs can charge under the base expense ratio and what can be charged as brokerage outside BER, within limits.

Think of it this way:

BER is the AMC-controlled cost you can compare across similar funds.
TER is the full cost view and can move more because it includes trade-related costs too.

Removal of the 5 bps Exit Load Headroom

Content can explain:

Earlier, AMCs could charge an additional 0.05% (5 basis points) if the scheme imposed an exit load.
SEBI removed this allowance from April 1, 2026.
This reduces the maximum expenses that can be charged to investors.
It is one of the reasons SEBI expects overall investor costs to decline.

Snapshot of the April 1, 2026 SEBI MF

Overhaul Unbundled Disclosures: Bundled TER is replaced by a granular breakup (BER + Trading Costs + Taxes).
Lower Fee Ceilings: Base caps for active equity dropped to 2.10%, and passive index funds/ETFs are capped at a maximum BER of 0.90%.
No More Hidden Buffers: The extra 5 bps allowance for funds with exit loads has been completely deleted.
Anti-Cloning Rules: Thematic and sectoral funds from the same AMC face a strict 50% portfolio overlap restriction to ensure investors aren’t paying twice for the same stocks.

Expanded Fund Categories (From 36 to 40)

SEBI expanded the mutual fund categorisation framework from 36 categories to 40.
New categories were introduced to better reflect evolving investment strategies.
This gives investors more targeted investment options.
The expansion also helps improve scheme differentiation and reduce overlap between products.

The 50% Portfolio Overlap Rule

Stops Copycat Funds: A fund house cannot launch a niche or thematic fund if more than 50% of its total investment weight mirrors another active equity fund they already manage, forcing it to build unique portfolios.
Guarantees Real Diversification: When you buy different funds from the same fund house, you are guaranteed to get distinctly different portfolios rather than duplicate stocks under a flashy new name.
Saves on Hidden Fees: It prevents you from accidentally paying multiple, separate expense ratios for what is essentially the same basket of underlying companies.
Large-Cap Exception: Large-cap funds are excluded from this math because the pool of large Indian blue-chip companies is small, making natural overlap inevitable among market giants.
Zero Investor Panic: Fund houses have a gradual, three-year transition window to adjust their weightings, ensuring no forced or frantic selling that could drag down your current returns.

How the New TER and BER Framework Works

Step 1: TER Now Reflects a Broader Set of Costs

AMC addenda state that TER includes:

Base Expense Ratio (BER): The fixed core fee a fund house charges exclusively to handle fund management, administration, and distributor commissions, stripped entirely of trading costs and taxes.
Brokerage Cost: The internal trading commission paid to stockbrokers whenever the fund buys or sells shares, capped by SEBI at 0.06% for cash shares and 0.02% for derivatives.
Transaction Cost: The background execution and settlement fees charged by stock exchanges and clearing corporations to move securities in and out of the fund physically.
Statutory Levies: Government-mandated taxes, specifically GST, stamp duty, and Securities Transaction Tax (STT), that are now pulled out of the base fee and charged directly on actuals.

Earlier, only the basic fund expenses and GST showed up in the reported TER. Brokerage, transaction costs, and related statutory levies were still being deducted from the fund, but they were not shown separately in the TER.

Step 2: BER represents the AMC-Controlled Expense Component.

BER covers the AMC fee and recurring scheme expenses within the allowed caps. Addenda describe how BER is defined and capped by category and AUM slab. If you are comparing two active equity funds, BER is the cleanest starting point.

Step 3: Brokerage Costs Charged Outside BER.

Brokerage costs for trade execution can be charged over and above BER, up to:

0.06 percent of trade value for cash market transactions
0.02 percent of the f trade value for derivatives transactions

Note: Any brokerage cost incurred by the AMC above these limits cannot be passed on to the investor. The AMC must either absorb it into its own corporate books or fit it within its BER cap.

Step 4: Removal of Additional Expense Headroom

Addenda and legal summaries note the removal of certain additional expense headroom that existed earlier.

Step 5: Why TER May Appear Higher After April 1, 2026

The costs existed earlier, but the reporting changed. Trade-related costs can also make TER look higher on higher trading days because they are annualised for reporting. Expense ratios look higher now, mainly because reporting changed from April 1.

Why Is My Daily Mutual Fund TER Fluctuating?

If you notice your mutual fund’s Total Expense Ratio (TER) moving up or down slightly from day to day, don’t worry—your fund house isn’t randomly changing its management fees.

Under SEBI’s updated rules, the daily fluctuation happens because of how trading costs and taxes are calculated. Here are the main reasons why that headline percentage keeps shifting:

Taxes and Trading Fees are Charged on “Actuals”: Your fund’s base management fee (BER) stays completely flat, but government taxes (like STT, GST, and stamp duty), along with stockbroker commissions, are now calculated and added to the TER based on actual daily activity.
Heavy Trading Days Push Up Costs: If your fund manager buys or sells a large volume of stocks on a specific day to reposition the portfolio, the trading brokerage and transaction taxes spike for that day, temporarily pushing the daily TER calculation upward.
Days of Inactivity Drop the Ratio: On days when the fund manager doesn’t trade any stocks and just holds the existing portfolio, your transaction and brokerage costs drop to zero, leaving the TER looking noticeably lower.
Fluctuating Total Assets (AUM): Because the expense ratio is shown as a percentage of the fund’s total market value, daily stock market swings alter the total asset base. If the market crashes or surges, it stretches or shrinks that percentage calculation even if the absolute rupee cost remains identical.

BER vs TER: What Is the Difference?

Feature	TER (Total Expense Ratio)	BER (Base Expense Ratio)
What it is	The all-inclusive ultimate cost you pay annually. Under the current rules, it simply represents the final sum of the base fee plus actual trading costs and government taxes added together.	The core management fee charged by the mutual fund company. This is a standalone cost that covers only the fundamental expenses of running and operating the fund.
Timeline	It has always been used and is still used today as the single headline percentage showing the final cost deducted from your fund’s value.	Officially introduced as a separate, visible line item starting April 1, 2026.
What’s included	Absolutely everything: The Base Expense Ratio (BER) PLUS actual brokerage charges, trading transaction costs, and government taxes.	Only the fund’s internal costs: Fund manager salaries, administrative overhead, marketing, and distributor commissions.
What’s excluded	Nothing. It reflects the total out-of-pocket cost deducted from the fund’s performance.	Trading costs and government taxes (like GST, STT, and stamp duty) are completely excluded from this specific number and sit outside it.
Max Limit (Equity Funds under ₹500 cr)	BER is capped at 2.10% for active equity funds. TER is not separately capped, but it remains bounded because it includes only the capped BER, actual taxes, and capped trading costs.	Strictly capped by SEBI at a maximum of 2.10% for smaller funds, scaling downward as the fund grows larger.
Max Limit (Debt Funds under ₹500 cr)	Variable based on actual taxes, but the baseline starting point begins with the fixed BER cap.	Strictly capped by SEBI at a maximum of 1.85% for smaller funds.
The Core Impact	It remains the ultimate number that impacts your actual returns, but it is no longer an opaque black box where costs are hidden.	Gives investors perfect clarity. You can now look at the BER to see exactly what the fund house is charging for its services, independent of government taxes.

How Expense Ratios Affect Mutual Fund Returns

Higher expense ratio = lower returns. If a fund earns 10% and has 1% fee, you get 9%.
Small differences matter over time. A 0.5% higher fee can cost thousands over 10 years due to less compounding.
Fee is deducted daily from NAV. This reduces your long-term growth.
Lower expense ratio = more money stays invested. Your investment grows faster.
Same returns, different outcomes. The fund with a lower fee gives you more money at the end.

Example of How Expense Ratios Can Affect Investor Returns

Imagine two friends, Rahul and Amit, who both start a monthly SIP of ₹10,000 for 25 years.

Rahul invests in a Direct Plan: His fund grows at an average net return of 13% per year after low internal expenses.
Amit invests in a Regular Plan: Because of higher embedded fees and distributor commissions, his net return is 1% lower, coming in at 12% per year.

Here is how their wealth stacks up at the finish line:

Rahul’s Corpus (at 13%): ₹2.22 Crore
Amit’s Corpus (at 12%): ₹1.90 Crore

Key Features of the SEBI Expense Ratio Framework

TER is now a more complete cost view. Earlier reported TER did not include several trade-related costs, even though they affected NAV. Now they are reflected in TER reporting.
BER caps depend on AUM slabs. AMC addenda show BER slab caps for equity-oriented and other than equity-oriented schemes.
Brokerage caps are clearly stated. Cash market 0.06% and derivatives 0.02%.

TER Reporting Before and After April 1, 2026: What Changed for Investors

What are you checking	Till March 31, 2026	From April 1, 2026	What to do
Reported TER	Base expenses and GST were mainly included in the reported TER	TER shown with BER, brokerage, transaction costs, and statutory levies	Track the TER trend, compare the BER for the fee structure
Daily TER movement	Reported TER looked steadier	TER can move more due to trade costs being included	Do not react to one day TER
AMC fee visibility	Harder to separate	BER shows the AMC-controlled part	Use BER to compare similar funds

This table shows how expense ratio reporting changed from April 1, 2026. Before that date, TER only showed base expenses and GST. Now it includes BER, brokerage, transaction costs, and statutory levies. This is why TER can look higher and move more from day to day.

How Different Types of Investors May Be Affected

Group	What changes for them	Why
Long-term SIP investors	Small cost differences show up over time	Compounding makes basis points matter
Investors comparing active funds	Easier to compare the AMC fee using BER	BER is the steadier number
Investors who check TER daily	More confusion	TER can jump with trading activity
Investors in index funds	Mixed	Many were already low cost, but the cap is 0.90 percent in addendums

Benefits of the Revised Expense Ratio Framework

Easier comparison using BER. BER is a cleaner number for comparing what AMCs charge, especially within the same category.
Better visibility into trade-related costs. Now, investors can see why costs change on active trading days.
Expected reduction in average charges SEBI expects average charges to fall by 10 to 15 basis points.

Limitations and Considerations for Investors

TER can look higher even when the fund did not start charging a new cost. This is a reporting change, not a sudden cost increase.
Wrong comparisons can lead to bad decisions. If you compare a direct plan TER to a regular plan TER of another scheme, you can draw the wrong conclusion.
One day, the TER moves can mislead. Trade costs are included and annualised, so the daily TER can move more.
Performance-linked base fees can be harder to judge. Legal summaries and industry coverage note that performance-linked base expense models can exist, which adds complexity for the investor.

Direct Plans vs Regular Plans: Understanding the Cost Difference

Regular plans include distribution charges. Direct plans do not.
In a regular plan, you pay for the distributor who helps you buy and track the fund. This cost is built into the expense ratio. In a direct plan, you invest on your own through the fund house or an app, so there is no distributor fee.
In the US, mutual funds show distribution and service fees (like 12b-1 fees) separately in the fee table. Investors compare funds after taking these costs into account. In India, the plan you choose (direct or regular) changes your cost more than a small change in the expense ratio cap.
A regular plan can cost 0.5% to 1% more per year than a direct plan. Over 10 years, this difference can cut your returns by thousands of rupees. Choose direct if you invest and review on your own. Choose regular if you want distributor support for advice and help.

Point	Direct plan	Regular plan
Distribution-related cost	Not included	Included as part of the ongoing cost structure
Best fit	You invest and review on your own	You want distributor support
Mistake to avoid	Comparing the direct of one fund with the regular of another	Comparing the direct of one fund with the regular of another

How to Check the TER and BER of a Mutual Fund

Go to AMFI website → Click “TER of MF Scheme” → Select fund and scheme → Download spreadsheet with BER.
Check the fund house website. Look for the expense ratio or BER under the scheme factsheet.
Read the Scheme Information Document (SID) or the Key Information Memorandum (KIM). Both show the expense ratio before investing.
Check the monthly fact sheet from the fund house. It includes BER details for your scheme.
Check your mutual fund investment platform or app. Most platforms display the scheme’s current expense ratio on the fund details page, making it easy to compare costs before investing.

Common Mistakes

Switching funds only because the TER looks higher after April 1, 2026. The reporting changed. Do not treat it as a sudden cost jump.
Comparing TER on one random day, Daily TER can move due to trading activity. Track it over time.
Ignoring BER while comparing active funds, the BER is the steadier number for fee comparison.
Ignoring tracking measures for index funds. Low cost helps, but index funds should also follow the index closely.
Assuming caps mean what your fund charges, Caps are upper limits. Your fund can be well below them.

Who Should Pay Attention to Expense Ratio Changes?

Best fit:

Long-term SIP investor
Investors comparing active funds across AMCs
Investors are confused as to why expense ratios look higher after April 1, 2026

Less useful for:

Very short-term investors who exit quickly
Investors who never review costs

Conclusion

The 2026 SEBI Expense Ratio Caps changed how mutual fund costs are shown and tightened the cost framework. TER is now shown with components including BER, brokerage, transaction costs, and statutory levies, which can make the displayed TER look higher than before.
For returns, compare BER across similar funds, track TER over time, and choose plan type based on whether you want support.

To compare mutual funds, track investment costs, and explore market-related insights, investors can use the tools and resources available through Alice Blue.