Mutual Fund Choices: Balancing Expense Ratios And Risk Factors Under SEBI’s 2026 Rules

Mutual funds remain one of India’s most popular investment options, but choosing the right scheme requires balancing costs, risks, and returns. With SEBI’s new expense ratio rules, investors now have clearer visibility into what they are paying for, helping them make more informed decisions.

Expense Ratio Matters

New framework: SEBI has redefined the Total Expense Ratio (TER) into two components—Base Expense Ratio (BER) (AMC-controlled costs) and external charges (brokerage, GST, stamp duty, etc.).

Impact: Expense ratios have been reduced by up to 15 basis points, lowering costs for investors.

Transparency: Investors can now distinguish between fund house expenses and regulatory levies.

Risk Factors To Consider

Market risk: Equity funds are subject to volatility, while debt funds face interest rate risks.

Liquidity risk: Some funds may have lock-in periods or exit loads.

Fund size: Larger funds benefit from lower expense ratios, rewarding economies of scale.

What Investors Should Do

Compare BER across funds to identify efficient managers.

Assess risk appetite before choosing equity, debt, or hybrid schemes.

Review fund house disclosures regularly, as expense structures have been updated across leading AMCs like ICICI Prudential, Aditya Birla Sun Life, and Quant.

Key Highlights

•⁠  ⁠SEBI’s new expense ratio rules effective April 1, 2026

•⁠  ⁠TER split into Base Expense Ratio and external charges

•⁠  ⁠Expense ratios reduced by up to 15 basis points

•⁠  ⁠Larger funds enjoy lower costs due to AUM slabs

•⁠  ⁠Investors must balance costs with risk and return potential

Sources: Cafemutual, Upstox, 980 Blogs, SEBI Circulars