Sebi's Big Move: How Lower Expense Ratios Can Boost Your Mutual Fund Investments

In a significant development, India's capital market regulator has reduced the expense ratio for mutual fund investments, making it cheaper for investors to put their money in mutual funds. This move is expected to simplify the expense structure and improve transparency, ultimately benefiting investors.

What's Changing?

The Securities and Exchange Board of India (Sebi) has cut the brokerage costs that mutual funds can charge investors. In the cash market, the cost has been reduced to 6 basis points from 12 basis points. In the derivatives segment, the cost has been lowered to 2 basis points from 5 basis points. Additionally, the extra 5 basis points charged over the exit load have been scrapped.

Impact on Investors

These changes will make investing in mutual funds more affordable for investors, which can lead to better long-term returns. The revised provisions will come into effect from the next financial year, starting 1 April 2026. Experts believe that lower expense ratios will increase transparency, which can attract more investors to mutual funds.

Market Impact

While Sebi's move is a positive development, it is unlikely to have a major impact on overall market sentiment. The main concern for the market remains the sustained outflow of foreign institutional investors (FIIs). In December, FIIs have offloaded Indian equities worth ₹22,284 crore in the cash segment.

• The move is expected to marginally increase retail liquidity in the markets.
• It may boost mutual fund investments, but the impact will be limited.
• Sebi's primary goal is to reduce the dependence on FIIs and increase domestic participation in the market.

Expert Views

According to VK Vijayakumar, chief investment strategist, the move is a marginal positive for the market. G Chokkalingam, founder and head of research at Equinomics Research Private Limited, believes that the move will not have a major impact on market sentiment, but it will help reduce the influence of FIIs on the market.

Remember, this is a perspective, not a prediction. It's essential to do your own research and consult with certified experts before making any investment decisions, as market conditions can change rapidly and circumstances may vary.