What is the fee to join Mutual Fund? What will be the new fee? Investors should aware about these new rules

SEBI has decided to make the mutual fund investment easier. Over the years, popularity for mutual fund investment has grown rapidly. With the rising increase, there are some need to change in existing rules.

Deduction in fee

Now, SEBI (Securities and Exchange Board of India) has issued a consultation paper proposing a significant reduction in mutual fund fees. This move is nothing short of a relief for investors. Let’s understand, in simple terms, the current fees, what changes SEBI is planning to make, and how long-term investors will benefit from this. The main fee is the Total Expense Ratio (TER), which is the total cost of running the fund. This is charged annually on your investment.

For equity mutual funds (those with shares), the TER limit is 2.25% on average assets under management (AUM) of Rs 500 crore. As AUM increases, it decreases – reaching 1.60% above Rs 50,000 crore. Meaning, if your fund is larger, the TER is lower.For debt funds (those with bonds), this is even lower – 0.20% on the first ₹100 crore, and 0.80% above ₹1,000 crore. Additionally, an exit load (early withdrawal) fee can be up to 1% of AUM. There are also transaction costs – 0.12% for cash trades and 0.05% for non-cash trades. Brokerage and distribution fees can sometimes exceed 1%.

Overall, if you buy a mutual fund worth Rs 1 lakh, the TER alone could be deducted by Rs 2,000-2,500 per year. This may seem small, but over 10-20 years of investment, it can add up to thousands. According to SEBI’s proposal, the consultation paper suggests reducing the TER for equity funds to 1.50% on the first ₹500 crore of AUM. Larger fund slabs will also see a 30-40% reduction. For debt funds, the TER was previously limited to 0.15% on ₹100 crore and 0.40% above ₹1,000 crore.

Extra fee will be eliminated

Excessive exit load fees will be eliminated. Transaction costs will be capped at just 0.05% for all trades. Distribution fees, such as brokerage, will be limited to 0.10% (10 basis points) for equity funds and 0.05% for debt funds. SEBI says this will save investors ₹10,000–15,000 crore annually. This proposal will make the ₹60 lakh crore mutual fund industry more transparent and affordable. The paper is currently open for public comment until October 15, 2024. If approved, it could be implemented from April 1, 2025.

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