SEBI TER Limit for Mutual Funds 2026: Complete Regulatory Guide

What Is the SEBI TER Limit for Mutual Funds and Why Does It Exist?

The SEBI TER limit for mutual funds is a statutory ceiling on the annual percentage of a scheme's net assets that an Asset Management Company (AMC) may deduct as operating expenses. Per SEBI circular SEBI/HO/IMD/DF2/CIR/P/2019/14 dated January 22, 2019, equity mutual funds face a maximum total expense ratio of 2.25% and debt funds face a cap of 2.0%, applicable to the first Rs 500 crore of daily net assets — with the ceiling declining in slabs as AUM rises. These limits exist because TER is deducted directly from NAV daily, making it an invisible but compounding drag on every investor's real return across the life of their investment.

What components are legally included in the TER calculation under SEBI rules?

Under SEBI Regulation 52 of the SEBI (Mutual Funds) Regulations, 1996, the total expense ratio encompasses fund management fees, registrar and transfer agent (RTA) charges, custodian fees, statutory audit fees, marketing and distribution expenses (for regular plans), SEBI registration fees, and investor education and awareness charges levied by AMFI. Brokerage costs on portfolio transactions, exit loads (credited back to the scheme), and Securities Transaction Tax are explicitly excluded from TER. This distinction matters because investors sometimes conflate portfolio transaction costs with the expense ratio — they are structurally separate.

Why did SEBI revise the TER structure in 2019 instead of keeping a flat cap?

The 2019 revision under SEBI/HO/IMD/DF2/CIR/P/2019/14 replaced the earlier flat-cap model with a slab-linked structure specifically to ensure that economies of scale in fund management are passed on to investors as AUM grows. Before 2019, large funds with thousands of crores in AUM could charge the same maximum TER as small funds, effectively extracting disproportionately large absolute fee amounts. The slab model forces AMCs to reduce the TER ceiling as net assets cross defined thresholds, aligning the AMC's revenue growth with investor benefit.

How does the SEBI TER limit differ for ETFs, index funds, and Fund of Funds?

SEBI imposes separate, stricter TER limits for passive vehicles. Index funds and ETFs (other than Fund of Funds) are capped at 1.0% total expenses under SEBI circular SEBI/HO/IMD/DF2/CIR/P/2019/14 dated January 22, 2019. Fund of Funds (FoFs) that invest in actively managed schemes face a TER cap of 2.25% at the FoF level, but the aggregate cost (FoF TER plus the underlying scheme's TER) cannot exceed the maximum TER permissible for the underlying scheme. This prevents double-charging investors through layered fund structures.

How Is the TER Slab Structure Calculated Across AUM Thresholds?

The SEBI TER slab structure works by applying declining maximum TER percentages to successive tranches of a scheme's daily net assets, not a flat rate on total AUM. The effective TER for any scheme is the blended average of the applicable rates across all slabs, which means investor cost as a percentage of assets falls naturally as a fund grows large.

What is the exact SEBI TER slab table for equity and debt funds in 2026?

The table below sets out the SEBI-mandated maximum TER slabs per SEBI circular SEBI/HO/IMD/DF2/CIR/P/2019/14 dated January 22, 2019, applicable as of May 2026. Direct plan TERs must be lower than regular plan TERs within these ceilings by excluding distribution commission.

Daily Net Assets Slab	Max TER — Equity Schemes (%)	Max TER — Debt Schemes (%)
First Rs 500 crore	2.25	2.00
Next Rs 250 crore (Rs 500–750 crore)	2.00	1.75
Next Rs 1,250 crore (Rs 750–2,000 crore)	1.75	1.50
Next Rs 3,000 crore (Rs 2,000–5,000 crore)	1.60	1.35
Next Rs 5,000 crore (Rs 5,000–10,000 crore)	1.50	1.25
Next Rs 40,000 crore (Rs 10,000–50,000 crore)	1.05 to 1.50 (tapered)	0.80 to 1.25 (tapered)
Above Rs 50,000 crore	1.05	0.80

How does the direct vs regular plan TER gap manifest within SEBI's ceiling?

Within any given scheme, the direct vs regular plan TER gap represents the distribution commission and trail fee that the AMC would otherwise pay to a distributor — and that gap is mandated by SEBI to be reflected as a lower TER in direct plans. For actively managed equity funds as of FY2024-25, this gap typically ranges from 0.50% to 1.10% annually. The table below illustrates representative TER ranges across plan types and categories, using well-known fund examples (data illustrative based on publicly available AMC disclosures for FY2024-25).

Fund (Illustrative)	Category	Regular Plan TER (%)	Direct Plan TER (%)	Annual Cost Gap (%)
Parag Parikh Flexi Cap	Flexi Cap	1.56	0.57	0.99
Mirae Asset Large Cap	Large Cap	1.55	0.52	1.03
SBI Small Cap	Small Cap	1.76	0.69	1.07
HDFC Mid-Cap Opportunities	Mid Cap	1.57	0.77	0.80
Nifty 50 Index Fund (category avg)	Index Fund	0.40	0.10	0.30

Note: All TER figures above are illustrative, based on publicly available AMC disclosures for FY2024-25. Current TERs must be verified on the AMFI portal at amfiindia.com before any analysis.

What Is the Real-World Impact of TER on a Rs 10 Lakh Corpus Over 20 Years?

TER's impact is frequently underestimated because it operates silently inside NAV — but its compounding effect over a 20-year horizon is structurally equivalent to a significant reduction in final corpus. Two worked examples below quantify the exact rupee cost of expense ratio differentials on a Rs 10 lakh starting investment.

Worked Example 1: Direct Plan vs Regular Plan over 20 Years

Consider an investor allocating Rs 10,00,000 as a lump sum into an actively managed equity fund with a gross portfolio return of 12.00% CAGR before expenses. The direct plan charges 0.57% TER and the regular plan charges 1.60% TER — representative figures for a large flexi cap fund in FY2024-25.

Parameter	Direct Plan	Regular Plan
Starting Corpus	Rs 10,00,000	Rs 10,00,000
Gross CAGR (before TER)	12.00%	12.00%
TER Deducted Annually	0.57%	1.60%
Net CAGR (after TER)	11.43%	10.40%
Corpus After 20 Years	Rs 83,88,000	Rs 71,53,000
Corpus Difference (TER Leakage)	Rs 12,35,000 — 14.7% of final direct corpus lost to higher TER

Formula applied: Final Corpus = Starting Corpus × (1 + Net CAGR)^N, where Net CAGR = Gross CAGR − TER, and N = 20 years.
Direct: Rs 10,00,000 × (1.1143)^20 = Rs 83,88,000 (approx.)
Regular: Rs 10,00,000 × (1.1040)^20 = Rs 71,53,000 (approx.)

Worked Example 2: High-TER vs Low-TER Equity Fund (same category, 15-year SIP horizon)

A second scenario models a monthly systematic investment plan of Rs 10,000 per month over 15 years in two equity funds within the same category — one a higher-cost regular plan (1.75% TER) and one a lower-cost direct index fund (0.15% TER) — both assumed to generate identical gross returns of 11.5% CAGR. This isolates the pure cost drag with no alpha differential.

Parameter	Active Regular Plan (1.75% TER)	Direct Index Fund (0.15% TER)
Monthly SIP Amount	Rs 10,000	Rs 10,000
Total Invested (15 years)	Rs 18,00,000	Rs 18,00,000
Gross CAGR	11.50%	11.50%
TER	1.75%	0.15%
Net CAGR	9.75%	11.35%
Estimated Final Corpus	Rs 38,90,000	Rs 46,10,000
Cost Drag in Absolute Terms	Rs 7,20,000 — 40% of the original invested capital lost purely to the TER differential

SIP corpus estimates use standard FV of annuity formula: FV = P × [((1 + r/12)^n − 1) / (r/12)], where r = net annual rate and n = 180 months. All figures are illustrative for educational purposes.

Common Misconceptions About the SEBI TER Limit for Mutual Funds

Several widespread beliefs about TER limits lead investors to underestimate their real cost exposure. Each misconception below represents a structurally incorrect assumption that data directly refutes.

Is it true that TER is charged only when you redeem your mutual fund units?

This is false. TER is deducted from the fund's net assets every single day — 1/365th of the annual TER is subtracted before NAV is calculated and published on the AMFI portal. There is no separate redemption-day deduction of TER. What investors sometimes confuse TER with is exit load (typically 1% if redeemed within 1 year for equity funds), which is a separate charge credited back to the scheme — not to the AMC. The two costs operate through entirely different mechanisms.

Does a higher TER mean a fund manager is working harder and delivering better returns?

SEBI data and academic research on Indian mutual funds consistently show no statistically significant positive correlation between TER level and gross alpha generation. A fund charging 2.0% TER does not, by structural logic, have a better-resourced or more capable fund management team than one charging 0.8% TER. The Sharpe ratio — which measures return per unit of risk — is a far more rigorous tool for assessing whether a fund's cost is justified by its risk-adjusted performance. On BullWiser's MF Analyser, both TER and Sharpe Ratio are surfaced together precisely for this cross-analysis.

Can AMCs charge any TER they want as long as it's below the SEBI maximum?

Within the SEBI ceiling, AMCs have discretion over their TER — but SEBI requires full daily disclosure. Per SEBI circular SEBI/HO/IMD/DF2/CIR/P/2019/14 dated January 22, 2019, AMCs must disclose the TER of each plan daily on their websites and report changes to SEBI within 7 working days of any revision. Critically, AMCs cannot charge differential TERs to different investors within the same plan — every unit holder in a given plan faces the identical TER for that day. This uniformity is a structural investor protection.

Is the TER cap the same for all equity fund sub-categories including ELSS and sectoral funds?

The SEBI TER slab structure applies uniformly across all equity scheme categories — including ELSS (which has a 3-year lock-in and Rs 1,50,000 annual deduction limit under Section 80C), sectoral/thematic funds, multi-cap, and flexi cap funds. There is no higher or lower cap for any equity sub-category under the 2019 circular. The only categorical distinction SEBI makes is between equity schemes, debt schemes, ETFs/index funds, and Fund of Funds — which face separate ceilings as discussed earlier.

Frequently Asked Questions About SEBI TER Limit for Mutual Funds

What is the SEBI TER limit for equity mutual funds in 2026?

The SEBI TER limit for equity mutual funds is 2.25% for the first Rs 500 crore of daily net assets, stepping down progressively to 1.05% for AUM above Rs 50,000 crore. This slab structure was set under SEBI circular SEBI/HO/IMD/DF2/CIR/P/2019/14 dated January 22, 2019, and remains in force as of May 2026. In practice, most large equity funds operate well below the maximum ceiling due to scale benefits.

How does TER affect my mutual fund returns over time?

TER directly reduces your net return by its exact percentage value every year, and this drag compounds over time. On a Rs 10 lakh lump sum over 20 years at 12% gross CAGR, moving from a 0.57% TER (direct) to a 1.60% TER (regular) reduces the final corpus by approximately Rs 12.35 lakh. The longer your investment horizon, the larger the absolute rupee impact of even a small TER difference.

Is TER in direct plans always lower than in regular plans?

Yes, SEBI mandates that direct plans must always carry a lower TER than the regular plan of the same scheme. Direct plans exclude distributor commission, which is the primary driver of the TER gap — typically 0.50% to 1.10% lower than the regular plan. You can compare direct vs regular TERs for any fund using the direct vs regular plan analysis on BullWiser or the AMFI portal.

Does TER change when a fund's AUM grows larger?

Yes, as a fund's daily net assets grow, the SEBI-mandated maximum TER ceiling declines according to the slab table. For example, an equity fund's TER cap drops from 2.25% on the first Rs 500 crore to 1.05% on assets above Rs 50,000 crore. Larger AUM automatically reduces the maximum permissible expense ratio investors can be charged.

How is TER deducted from my mutual fund investment — will I see it in my statement?

TER is deducted daily from the fund's net assets before NAV is published — you will never see it as a separate line item in your account statement. Each day, 1/365th of the annual TER is subtracted from total fund assets before the NAV is calculated. Every NAV you see on the AMFI portal already reflects the TER deduction for that day.

What is included in the total expense ratio calculation for mutual funds?

TER includes fund management fees, RTA charges, custodian fees, audit fees, SEBI registration fees, AMFI investor education levies, and distribution commission (in regular plans only). It excludes brokerage on portfolio trades, exit load, and STT. Per SEBI Regulation 52, all includable cost components are exhaustively defined — AMCs cannot include unapproved charges in TER disclosures.

Can SEBI change the TER limit after I have already invested?

SEBI can revise TER limits through new circulars, and any change applies to all schemes from the effective date — including your existing investments. Past investments are not protected by grandfathering provisions. The TER on your fund can change at any time within SEBI's revised ceiling. Always check current TERs on the AMFI portal at amfiindia.com for the most up-to-date figures.

Why do debt mutual funds have a lower TER cap than equity funds?

Debt funds face a lower SEBI TER cap of 2.0% versus 2.25% for equity funds because debt management involves lower research intensity and trading costs, and debt fund absolute returns are structurally lower — making a high TER proportionally more damaging to net yield. The SEBI logic is that cost limits should reflect the return potential of the underlying asset class to protect net investor outcomes.