Base expense limits
The full set of SEBI ceilings on a scheme's base expense ratio, which differ by scheme type — open-ended equity and debt, index funds and ETFs, fund of funds, and close-ended schemes.
In plain language
A mutual fund scheme cannot charge whatever it likes. SEBI caps the base expense ratio — the AMC's own running cost — and the cap is not one number. It depends on what kind of scheme it is.
An ordinary open-ended equity or debt scheme is capped on a sliding scale that falls as the scheme grows. An index fund or ETF, which barely needs a fund manager, is capped much lower. A fund of funds is capped differently again, because it also carries the cost of the schemes it invests in. A close-ended scheme has its own, separate limit.
These are ceilings on the base expense ratio specifically — see Base Expense Ratio for what that component covers, and how brokerage and other charges sit on top of it.
How it works
The limits, all as a percentage of daily net assets (Chapter 7):
| Scheme type | Equity-oriented | Other than equity-oriented |
|---|---|---|
| Open-ended, standard slabs | 2.10% down to 0.95% | 1.85% down to 0.70% |
| Index fund / ETF | 0.90% | 0.90% |
| Fund of funds — investing in liquid/index/ETF schemes | — | 0.90% |
| Fund of funds — 65%+ in equity-oriented schemes | 2.10% | — |
| Fund of funds — other | — | 1.85% |
| Close-ended and interval | 1.00% | 0.80% |
The open-ended standard slabs step down as assets grow — 2.10%/1.85% on the first Rs 500 crore, falling in stages to 0.95%/0.70% on the balance (see Base Expense Ratio for the full table). For a fund of funds, the TER includes the weighted average TER of the underlying schemes, and any TER charged over and above that weighted average cannot exceed two times it, still subject to the overall ceiling above. Any expenditure above the limit that applies must be borne by the AMC, trustees or sponsors — not the scheme.
A worked example
An AMC runs three schemes with daily net assets of Rs 3,000 crore each, and wants to know what each is allowed to charge as its base expense ratio.
Equity-oriented open-ended fund → standard slab, works out near 1.8% on this size
Nifty 50 index fund → capped flat at 0.90%
Close-ended equity scheme → capped flat at 1.00%
The equity-oriented open-ended fund can charge roughly double what the index fund on the same corpus can — the regulatory reward for actually managing the money, not just replicating an index. If the index fund's AMC tried to charge 1.20%, the excess 0.30 percentage points, or about Rs 9 crore a year on Rs 3,000 crore, would have to come out of the AMC's own pocket, not the scheme's.
Why NISM asks about it
Chapter 7 (Net Asset Value, Total Expense Ratio and Pricing of Units) sets out every one of these ceilings in Regulation 66 of the SEBI (Mutual Funds) Regulations, 2026. Expect a question that gives a scheme type and asset size and asks for the applicable ceiling, or that tests which scheme type gets the 0.90% ceiling (index funds, ETFs, and one category of fund of funds).
Common exam traps
- 0.90% applies to two different things for two different reasons — an index fund/ETF (because there is little to manage) and a fund of funds investing in liquid/index/ETF schemes (to stop a double layer of high fees).
- A fund-of-funds ceiling includes the underlying schemes' TER, not just the wrapper's own charge.
- Close-ended schemes have their own, lower ceiling (1.00%/0.80%) — do not apply the open-ended slab table to them.
- These are base limits only. Brokerage, transaction cost and statutory levies are permitted on top — see Brokerage and transaction cost allowance.
Check yourself
1.A scheme overspends its base expense limits and also wishes to levy a new "investor convenience fee". What is the position?
- a)Both are permissible if disclosed in the SID
- b)The excess must be borne by the AMC, trustees or sponsors, and no charge other than base expense ratio, brokerage cost, transaction cost, statutory levy and exit load may be charged to investors
- c)The excess may be charged to the scheme if the trustees approve, and new fees are allowed up to 0.06%
- d)The excess may be recovered from investors over the following financial year
Show the answer
Answer: (b) The excess must be borne by the AMC, trustees or sponsors, and no charge other than base expense ratio, brokerage cost, transaction cost, statutory levy and exit load may be charged to investors
"Any expenditure IN EXCESS OF THE BASE LIMITS specified in these regulations SHALL BE BORNE BY THE ASSET MANAGEMENT COMPANY OR THE TRUSTEES OR SPONSORS." There is no route by which it reaches the scheme, whatever the trustees decide. And on new charges: "NO CHARGES OTHER THAN THE BASE EXPENSE RATIO, BROKERAGE COST, TRANSACTION COST, STATUTORY LEVY AND EXIT LOAD including levies as may be specified by the Board, SHALL BE CHARGED TO THE INVESTORS." The 0.06% figure in option (c) is something else entirely — "brokerage and transaction cost which are incurred for the purpose of EXECUTION OF TRADE up to 0.06 percent of trade value in case of CASH MARKET transactions and 0.02 percent of trade value in case of DERIVATIVES transactions." Note also what daily transparency requires: "AMCs need to prominently disclose ON A DAILY BASIS, the TER (scheme wise, date wise) of all schemes under a separate head – 'Total Expense Ratio of Mutual Fund Schemes' on their website and on the website of AMFI in DOWNLOADABLE SPREADSHEET FORMAT."
Where this is taught
Free preparation for NISM Series V-DRelated terms
- Base Expense RatioThe management-and-administration slice of a scheme's cost, capped by the SEBI slabs — the first and largest of the four components that add up to Total Expense Ratio.
- Total Expense RatioThe all-in annual cost of a mutual fund scheme as a percentage of daily net assets — the base expense ratio plus brokerage, transaction cost and statutory levies — charged to the scheme, not billed to the investor.
- Exchange Traded FundA mutual fund scheme whose units are listed and traded on a stock exchange like a share, so you transact at live prices through the day instead of at one end-of-day NAV.
- Brokerage and transaction cost allowanceThe execution cost a scheme may charge on top of its base expense limit — up to 0.06% of trade value in the cash market and 0.02% in derivatives, with anything beyond that borne by the AMC, not the scheme.