Base Expense Ratio

Under the cost structure effective from 1 April 2026, a mutual fund scheme no longer charges a single bundled number. It charges four separate things, and the base expense ratio is the first of them.

The BER covers what the AMC itself charges for running the scheme — investment management and advisory fees, registrar and transfer agent charges, trustee fees, audit, marketing, and, in a regular plan, distributor commission. What it excludes is anything that arises from trading: the brokerage paid to buy and sell, the transaction cost of executing, and the statutory levies on top.

See total-expense-ratio for the whole picture. This page is about the first line of it.

The base expense ratio is what the SEBI slabs actually cap. For an open-ended scheme other than a fund of funds or an index fund, the limits step down as the scheme grows:

Two procedural rules ride on the BER and are heavily examined. First, the BER of a direct plan must be lower than that of the regular plan, because it excludes distribution expenses and commission, and no commission may be paid from a direct plan. Second, any change in the BER must be told to investors by email or SMS at least three working days before it takes effect — the workbook's own illustration is that a BER effective from 8 January 2026 needs notice by 2 January 2026 — and the website disclosure must be updated in the same window.

TER = Base Expense Ratio (BER)
    + Brokerage cost
    + Transaction cost incurred for the purpose of execution of trade
    + Statutory levies (including GST)

BER is set under Regulation 66(7), brokerage cost under Regulation 66(9) and execution transaction cost under Regulation 66(10) of the SEBI (Mutual Funds) Regulations, 2026.

An equity-oriented scheme has daily net assets of Rs 2,000 crore. Its base expense limit is built slab by slab, not by applying one rate to the whole corpus:

First  Rs 500 cr  @ 2.10%  = Rs 10.50 cr
Next   Rs 250 cr  @ 1.90%  = Rs  4.75 cr
Next Rs 1,250 cr  @ 1.60%  = Rs 20.00 cr
                             -----------
On Rs 2,000 cr             = Rs 35.25 cr

Effective base expense limit = 35.25 ÷ 2,000 = 1.76%

The AMC charges a regular-plan BER of 1.70%, inside the limit. Now add the rest of the TER. The scheme turns over Rs 1,600 crore of cash-market trades in the year, and brokerage is charged at the permitted ceiling of 0.06% of trade value for cash market transactions:

Brokerage         = 0.06% × Rs 1,600 cr = Rs 0.96 cr
                  = 0.96 ÷ 2,000        = 0.048% of net assets
BER               = 1.700%
Brokerage         = 0.048%
Transaction cost  = as actually incurred
Statutory levies  = GST at the prevailing rate, on top

The regular-plan investor is paying roughly 1.75% before statutory levies. The direct plan of the same scheme, stripped of commission, might carry a BER of 1.05% — a gap of 0.65%, which on a Rs 5,00,000 holding is Rs 3,250 a year, compounding against the investor for as long as the holding lasts.

Chapter 7 (Net Asset Value, Total Expense Ratio and Pricing of Units) sets out the slabs and the additional charges; Chapter 5 (Scheme Related Information) gives the daily disclosure format (Format No. 7E) and the three-working-days notice rule for a change in BER. Expect a slab computation, a question on which of four listed charges sits inside the BER and which sits outside it, and a date question on the notice period — the January 8 / January 2 illustration is lifted straight from the workbook.

• "Excludes brokerage" is only half the rule. Execution brokerage may be charged over and above the BER, but only up to 0.06% of trade value on cash market and 0.02% on derivatives. Anything beyond those caps is not chargeable to investors at all and does not fold back into the base expense ratio: page 152 states that expenditure above the limits in the regulations shall be borne by the asset management company or the trustees or sponsors, and page 155 lists the only charges that may reach an investor. So a brokerage bill over the cap leaves the BER headroom untouched and comes out of the AMC's own money — that is what such a question is testing.
• BER is not TER. BER is one of four components. A question that gives you the BER and asks for the TER wants you to add brokerage, execution transaction cost and statutory levies.
• The slabs are cumulative, not a single rate. A Rs 2,000 crore equity scheme is not allowed 1.60% on the whole corpus; it gets 2.10% on the first Rs 500 crore and so on down.
• The 0.06% / 0.02% brokerage allowances are percentages of trade value, not of net assets. Their impact on TER depends entirely on portfolio turnover.
• Nothing else may be charged. Beyond the BER, brokerage, execution transaction cost, statutory levy and exit load, no charge may be passed to the investor.
• Direct plans are lower by construction, not by choice. The regulation requires the direct-plan BER to exclude distribution expenses and commission.
• The notice period is three working days, not three calendar days — count Saturdays, Sundays and holidays out.