In a major overhaul of the fee structure that mutual funds charge from investors, market regulator Sebi has issued norms to cap the total expenses for investment in such funds at 2.25 per cent.

While rationalising the total expense ratio (TER), or the fee that fund houses garner from investors every year to manage their money, the regulator said in a notification that this new fee structure will come into force from April 1 next year.

The move comes after its board had cleared a proposal in this regard in September.

The regulator has capped maximum TER for closed-ended equity schemes at 1.25 per cent and other than equity schemes at 1 per cent.

Similarly, maximum TER for open-ended equity schemes will be 2.25 per cent, and 2 per cent for other open-ended schemes.

TER is a percentage of a scheme’s corpus that an MF house charges towards expenses, including administrative and management.

TER was introduced in 1996 and has not been changed since then. Over a period of time, there have been varying practices in the industry with respect to charging payments and commissions.

On open-ended equity schemes, the regulator said the highest expense ratio allowed to be charged for the first Rs 500 crore of assets will be 2.25 per cent. As the AUM increases, the expense ratio will have to come down.

For the next Rs 250 crore, it will be two per cent; for further Rs 1,250 crore, it will be 1.75 per cent; for the next Rs 3,000 crore, the fee will be 1.6 per cent; and again on the next Rs 5,000 crore of the daily net assets, the charge will be 1.5 per cent.