Question 1

Mutual fund expense limits and rules in India are set by the Reserve Bank of India since they handle public investments.

Accepted Answer

SEBI holds exclusive regulatory jurisdiction over the mutual fund industry, including the setting of expense ratios, governance frameworks, and brokerage caps.

Question 2

The new Base Expense Ratio framework simply means mutual funds are fundamentally cheaper across the board.

Accepted Answer

While minor cost reductions occurred, the primary shift is structural unbundling; statutory levies like GST are now charged outside the BER, making costs transparent rather than outright eliminated.

Question 3

Consider the following statements regarding the SEBI (Mutual Funds) Regulations 2026: 1. It replaces the bundled Total Expense Ratio with an unbundled Base Expense Ratio framework. 2. Brokerage caps for cash market transactions have been increased to 12 basis points to accommodate rising research costs. 3. Asset Management Companies are now strictly prohibited from charging performance-linked fees. How many of the statements given above are correct?

Accepted Answer

(a) Only one — Statement 1 is correct; the 2026 regulations replace TER with BER. Statement 2 is incorrect; brokerage caps for cash transactions were slashed FROM 12 bps TO 6 bps precisely to eliminate bundled research costs. Statement 3 is incorrect; the new regulations explicitly ALLOW performance-linked fees for the first time, subject to strict SEBI conditions.

Question 4

Match the previous cost framework (List I) with the newly notified SEBI 2026 MF Regulations framework (List II): List I (Provision) - A. Single inclusive expense metric; B. Exit Load Buffer; C. Cash market brokerage limit; D. Statutory levies like GST. List II (2026 Rule) - 1. Charged outside the core expense ratio limit on actuals; 2. Slashed to 6 basis points; 3. Completely removed; 4. Replaced by Base Expense Ratio (BER).

Accepted Answer

(a) A-4, B-3, C-2, D-1 — A matches 4 (The bundled TER concept is replaced by BER). B matches 3 (The 5 bps exit load buffer was completely removed). C matches 2 (Cash market brokerage was capped at 6 bps, down from 12 bps). D matches 1 (Statutory levies are now unbundled and charged on actuals outside the BER).

Question 5

Assertion (A): The SEBI 2026 Mutual Fund Regulations slashed the cash transaction brokerage cap from 12 basis points to 6 basis points. Reason (R): SEBI intended to stop AMCs from bundling third-party research and non-execution services into trade execution costs, which previously led to investors double-paying for research. Select the correct answer.

Accepted Answer

(a) Both A and R are true and R is the correct explanation of A — Both statements are true. Under the pre-2026 regime, AMCs routinely paid higher brokerages because the fee bundled the actual execution cost with soft-dollar research services, meaning investors paid for research twice (via management fees and again via brokerage). Slashing the cap to 6 bps was SEBI's direct regulatory mechanism to stop this double-charging.

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