The transparency of the investment landscape has been gradually strengthened by the collaboration of the Reserve Bank of India (RBI) and the Securities and Exchange Board of India (SEBI). In a remarkable development for the year 2025, SEBI has set a new “comprehensive” rule for the Total Expense Ratio (TER) of mutual funds. The new regulations are aimed at making the wealth management costs for retail investors lower, thus transferring the benefits of the financial services sector’s growth directly to them.
Regulatory Overhaul of Expense Ratio Standards
The new banking regulations, along with the SEBI mandate, have closed the loophole in the “slab-based” structure for expense ratios, which typically allows AMCs to charge higher fees when a fund’s AUM increases. Under the new rules, as a fund’s AUM rises, the percentage that the fund house is allowed to charge must decrease more steeply than before. This move restricts the AMCs to a certain extent in their profits, thus empowering the small investors and enhancing the trend of financial inclusion through investor-friendly products.
Impact on Digital Banking and Investor Returns
The growing trend of online banking is bringing more investors to direct plans. The 2025 reset has also opened up all of the direct plan options for the investors at a much lower cost. A major portion of the investor’s money shall remain invested since the SEBI has already ensured that the costs that were previously hidden under different heads are slashed, and, hence, the investor’s money shall remain invested. It is by this very transparency that a rapid rise in the SIPs is expected because the lower costs will lead to compounding benefits over the long term for the average household.
Transparency in Asset Management and Current Accounts
The new regulation has made it clear how to report transaction costs and brokerage fees in the fund. In the past, these costs were normally not included in the total expense ratio (TER), but the new regulation mandates that all costs be reported in a more inclusive manner. For companies that manage their excess cash through current accounts or liquid funds, these changes result in less volatile profits and reduced costs. The regulator’s enforcement of these strict financial services guidelines is aimed at creating a stronger and more reliable ecosystem for both retail and institutional capital.