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8.5 The Expense Ratio Framework: Base Expense Ratio, Brokerage and Statutory Levies

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NISM-Series-V-A: Mutual Fund Distributors Certification Examination Exam

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1 Chapter 1: Introduction & Exam Overview

1.1 About the NISM-Series-V-A Examination 1.2 The 12-Unit Curriculum Map and a Study Plan

2 Chapter 2: Investment Landscape

2.1 Investors and Their Financial Goals 2.2 Savings or Investments? 2.3 Different Asset Classes 2.4 Investment Risks 2.5 Risk Measures and Management Strategies 2.6 Behavioural Biases in Investment Decision Making 2.7 Risk Profiling 2.8 Asset Allocation and Do-It-Yourself versus Professional Help

3 Chapter 3: Concept and Role of a Mutual Fund

3.1 Concept of a Mutual Fund 3.2 Classification of Mutual Funds 3.3 Growth of the Mutual Fund Industry in India

4 Chapter 4: Legal Structure of Mutual Funds in India

4.1 Structure of Mutual Funds in India 4.2 Key Constituents of a Mutual Fund 4.3 AMC Organisation Structure and Service Providers 4.4 Role and Function of AMFI

5 Chapter 5: Legal and Regulatory Framework

5.1 Role of Regulators in India 5.2 Role of SEBI and the Mutual Fund Regulations 5.3 Due Diligence Process by AMCs for Distributors 5.4 Investor Grievance Redress Mechanism 5.5 AMFI Code of Conduct for Intermediaries

6 Chapter 6: Scheme Related Information

6.1 Mandatory Documents I: Scheme Information Document and Statement of Additional Information 6.2 Mandatory Documents II: Key Information Memorandum and the Advertisement Code 6.3 Non-Mandatory Disclosures

7 Chapter 7: Fund Distribution and Channel Management Practices

7.1 The Role and Importance of Mutual Fund Distributors 7.2 Different Kinds of Mutual Fund Distributors 7.3 Modes of Distribution 7.4 Pre-requisites to Become a Distributor of a Mutual Fund 7.5 Revenue for a Mutual Fund Distributor 7.6 Commission Disclosure Mandated by SEBI 7.7 Distributors versus Investment Advisers, Nomination Facilities and Change of Distributor

8 Chapter 8: Net Asset Value, Total Expense Ratio and Pricing of Units

8.1 Fair Valuation Principles 8.2 Computation of Net Assets of a Scheme and NAV 8.3 Dividends and Distributable Reserves 8.4 Entry and Exit Load and Its Impact on NAV 8.5 The Expense Ratio Framework: Base Expense Ratio, Brokerage and Statutory Levies 8.6 Key Accounting and Reporting Requirements 8.7 NAV, Total Expense Ratio and Pricing of Units for the Segregated Portfolio

9 Chapter 9: Taxation

9.1 Applicability of Taxes in Respect of Mutual Funds 9.2 Capital Gains on Mutual Fund Units 9.3 Dividend (IDCW) Income and Tax Deducted at Source 9.4 Stamp Duty and Securities Transaction Tax on Mutual Fund Units 9.5 Setting Off Capital Gains and Losses under the Income Tax Act 9.6 Tax Benefit under Section 80C and Applicability of GST

10 Chapter 10: Investor Services

10.1 The New Fund Offer Process 10.2 New Fund Offer Price and Ongoing Offer Price for Subscription 10.3 Investment Plans and Services 10.4 Allotment of Units and Account Statements 10.5 Mutual Fund Investors: Who Can Invest 10.6 Filling the Application Form for Mutual Funds 10.7 Financial Transactions with Mutual Funds 10.8 Cut-Off Time and Time Stamping 10.9 KYC Requirements for Mutual Fund Investors 10.10 Systematic Transactions and Their Operational Aspects 10.11 Non-Financial Transactions, Special Investor Categories and Turnaround Times

11 Chapter 11: Risk, Return and Performance of Funds

11.1 General and Specific Risk Factors 11.2 Factors That Affect Mutual Fund Performance 11.3 Drivers of Returns and Risk in a Scheme 11.4 Measures of Returns 11.5 SEBI Norms Regarding Representation of Returns 11.6 Risks in Fund Investing: The Investor's Perspective 11.7 Measures of Risk and Provisions Relating to Credit Risk

12 Chapter 12: Mutual Fund Scheme Performance

12.1 Benchmarks and Performance 12.2 Price Return Index or Total Return Index 12.3 Basis of Choosing an Appropriate Performance Benchmark 12.4 Benchmarks for Equity Schemes 12.5 Benchmarks for Debt Schemes and Other Schemes 12.6 Quantitative Measures of Fund Manager Performance 12.7 Tracking Error and Scheme Performance Disclosure

13 Chapter 13: Mutual Fund Scheme Selection

13.1 Scheme Selection Based on Investor Needs, Preference and Risk Profile 13.2 Risk Levels in Mutual Fund Schemes 13.3 Scheme Selection Based on Investment Strategy 13.4 Selecting a Scheme Across AMCs or Within a Scheme Category 13.5 Selecting Options in Mutual Fund Schemes and Do's and Don'ts

8.5 The Expense Ratio Framework: Base Expense Ratio, Brokerage and Statutory Levies

Key Takeaways Explain This Topic AI

From 1 April 2026 the regulatory cap is the Base Expense Ratio, which excludes all statutory levies.

Total Expense Ratio is now the sum of BER, brokerage, regulatory levies and statutory levies.

Open-ended equity schemes carry a BER cap of 2.10% on the first INR 500 crore, falling to 0.95% above INR 50,000 crore.

Index funds and ETFs are capped at 0.90% BER, and close-ended equity schemes at 1.00%.

Brokerage caps net of levies are 6 basis points for cash market and 2 basis points for derivative transactions.

Last updated: August 2026

What Changed on 1 April 2026

This is the part of the syllabus most likely to be wrong in older material, so the change is worth stating precisely.

Under the framework in force until 31 March 2026, the Total Expense Ratio (TER) cap was a single number that had to accommodate everything, including statutory levies such as GST, securities transaction tax and stamp duty. Levies therefore competed with genuine management costs inside one ceiling.

From 1 April 2026 , under the SEBI (Mutual Funds) Regulations, 2026:

The regulatory cap is now the Base Expense Ratio (BER) , which excludes all statutory levies .

Statutory and regulatory levies — STT and CTT, GST, stamp duty, SEBI fees, exchange fees — are charged on actuals , over and above permissible brokerage limits.

Total Expense Ratio is now defined as the sum of BER, brokerage, regulatory levies and statutory levies. TER = BER + brokerage + regulatory levies + statutory levies

Because levies moved outside the cap, the cap itself was reduced so that the overall cost to investors falls rather than rises.

Base Expense Ratio Slabs for Open-Ended Schemes

The caps apply on a slab basis : each tranche of assets carries the rate for its own slab.

  • Daily net assets (INR crore) Equity-oriented BER Other than equity BER
  • Up to 500 2.10% 1.85%
  • 500 to 750 1.90% 1.65%
  • 750 to 2,000 1.60% 1.40%
  • 2,000 to 5,000 1.50% 1.25%
  • 5,000 to 10,000 1.40% 1.15%
  • 10,000 to 15,000 1.35% 1.10%
  • 15,000 to 20,000 1.30% 1.05%
  • 20,000 to 25,000 1.25% 1.00%
  • 25,000 to 30,000 1.20% 0.95%
  • 30,000 to 35,000 1.15% 0.90%
  • 35,000 to 40,000 1.10% 0.85%
  • 40,000 to 45,000 1.05% 0.80%
  • 45,000 to 50,000 1.00% 0.75%
  • Above 50,000 0.95% 0.70%

The structure delivers economies of scale to unitholders : as a scheme grows, the permitted rate on additional assets falls, so investors in large schemes pay proportionately less.

Caps for Other Scheme Types

  • Scheme type BER cap
  • Index funds and exchange traded funds 0.90%
  • Fund of funds investing in liquid schemes, index funds or ETFs 0.90%
  • Fund of funds investing more than 65% of AUM in equity-oriented schemes 2.10%
  • Other fund of funds 1.85%
  • Close-ended equity-oriented schemes 1.00%
  • Close-ended other than equity-oriented schemes 0.80%

Each of these was reduced from the previous cap, which had included statutory levies — index funds and ETFs, for example, moved from 1.00% including levies to 0.90% excluding them.

Brokerage Caps

Brokerage is charged in addition to BER, within its own limits, now expressed exclusive of statutory levies :

  • Transaction type Cap
  • Cash market transactions 6 basis points
  • Derivative transactions 2 basis points

The previous caps of 12 and 5 basis points included statutory levies; net of those levies they amounted to roughly 8.59 and 3.89 basis points, so the revision is a genuine tightening rather than a relabelling.

The Exit-Load Add-On Is Gone

The additional 5 basis points that schemes charging an exit load were permitted to levy, as a transitional measure, has been removed .

What May Be Charged

Permissible recurring expenses include investment management and advisory fees, trustee fees, custodian charges, registrar and transfer agent fees, audit and legal costs, marketing and selling expenses including distributor commission, investor communication costs, and the mandated contribution towards investor awareness initiatives.

Direct and Regular Plans

Every scheme offers both, holding the identical portfolio. The direct plan's expense ratio must be lower , because no distribution commission is embedded in it. The difference broadly equals the commission cost, and it compounds:

Illustration. INR 10,00,000 invested for 15 years at a gross return of 12%, with a regular plan expense ratio 0.70 percentage points higher than the direct plan. Compounding at 11.30% versus 12.00% produces a difference of several lakh rupees over the period. The gap is arithmetic, and a distributor should acknowledge it while explaining what the regular plan's cost buys.

Reading a Fact Sheet Correctly

Because TER is now a composite figure, comparing two schemes requires care. A scheme with heavy derivative activity carries more brokerage and levies within its TER than a low-turnover scheme with the same BER. Comparing BER tells you about the fund house's charging; comparing TER tells you what the investor actually bears. Both are worth knowing, and they are no longer the same number.