The TER slab table: what a mutual fund can legally charge you as expense ratio, by AUM size

When you buy a mutual fund, the return you actually keep is the gross return minus one number the industry rarely puts on the front page: the total expense ratio (TER). SEBI capped how much a fund can charge through circular SEBI/HO/IMD/DF2/CIR/P/2018/137 dated 22 October 2018, and the cap falls as the scheme grows larger. For an open-ended equity fund, the ceiling starts at 2.25% on the first Rs 500 crore of assets and slides to just 1.05% once assets under management (AUM) cross Rs 50,000 crore. That single circular is the reason the same fund can cost you very different amounts depending on which plan you hold.

The sharpest version of that choice is Direct Plan versus Regular Plan of the identical scheme. Both hold the same portfolio and the same fund manager; the only structural difference is that the Regular Plan bakes in distribution commission while the Direct Plan does not. Over a 20-year holding period, that gap in the expense ratio is not a rounding error - it can quietly cost a long-term investor several lakh rupees. This midday pulse walks through the SEBI TER slab table, compares the two plans side by side, sets out the tax treatment that applies from 23 July 2024, and shows which investor profile should pick which.

How SEBI Caps TER by AUM Size

The 22 October 2018 circular replaced a flat ceiling with a tiered, slab-wise structure so that economies of scale are passed to investors as a fund grows. The maximum TER is calculated on the daily net assets of the scheme, and each rupee of AUM is charged at the rate of the slab it falls into - not the whole corpus at a single rate. For open-ended equity schemes the slabs published by SEBI are as follows, with the parallel ceiling for other-than-equity (debt) schemes set 0.25% lower in every slab.

Two adjustments sit on top of the base table. First, a fund can charge up to an additional 0.30% (30 basis points) of TER on inflows sourced from beyond the top 30 cities, the so-called B30 incentive designed to widen retail participation outside metros. Second, under Regulation 52 of the SEBI (Mutual Funds) Regulations, 1996, the TER is fungible: an asset management company can allocate the total charge across sub-heads (management fee, registrar costs, marketing) as it wishes, so long as the aggregate stays within the slab ceiling. The practical takeaway for a Rs 60,000 crore equity fund is that its blended ceiling works out well below 1.5%, because the bulk of its AUM is charged at the lowest 1.05% rate.

None of this tells you what a fund actually charges - only the legal maximum. Actual TER is published daily by every AMC and aggregated by AMFI, and the number you should track is the one against your specific plan. That is where the Direct-versus-Regular split becomes the single most controllable variable in your portfolio.

Side-by-Side Comparison

A Direct Plan and a Regular Plan of the same scheme are legally the same product with two NAVs. SEBI mandated Direct Plans from 1 January 2013 precisely so investors who do not use a distributor need not pay for one. Because the Regular Plan's TER includes trail commission paid to the distributor and the Direct Plan's does not, the Direct Plan carries a lower expense ratio and therefore a higher NAV over time for the identical portfolio.

To see why a fraction of a percent matters, take a purely illustrative arithmetic example - not a forecast. Assume a Rs 10 lakh lump sum compounding at a hypothetical 12% gross annual return for 20 years. If the Regular Plan carries a 1.75% TER, the net return is 10.25% and the corpus grows to roughly Rs 70.4 lakh. If the Direct Plan of the same fund carries a 0.75% TER, the net return is 11.25% and the corpus grows to about Rs 84.3 lakh. That is a difference of nearly Rs 14 lakh from a 1.00% (100 basis points) gap in cost, before any tax. You can run your own numbers on the lump sum calculator or, for monthly contributions, the SIP calculator.

The same logic reshapes tax-saving choices. An ELSS calculator projection at Direct-Plan cost will always beat the Regular-Plan version of the identical scheme over the mandatory three-year lock-in and beyond, because the TER drag compounds against you every single day the units are held.

Tax Treatment

The plan you choose does not change how gains are taxed - the tax code treats Direct and Regular units of the same equity scheme identically. What changed materially was the 23 July 2024 Budget, which reset the capital-gains regime for equity mutual funds. For equity-oriented schemes, long-term capital gains (LTCG) on units held more than 12 months are taxed at 12.5%, with the first Rs 1,25,000 of such gains in a financial year exempt. Short-term capital gains (STCG) on units held 12 months or less are taxed at 20%. A health and education cess of 4% applies on the tax so computed.

Two points matter for TER-conscious investors. First, because the Rs 1,25,000 LTCG exemption resets each financial year, disciplined annual harvesting within that band can further reduce the tax drag that already sits alongside the expense drag. Second, equity mutual funds do not get indexation benefit on LTCG after 23 July 2024, so the flat 12.5% applies to the full gain - the SEBI-capped expense ratio and the 12.5% LTCG rate are the two costs that will define your net outcome. Debt-oriented schemes are taxed differently again, at slab rates, which is one more reason to read the scheme classification before comparing TER.

For the exact statutory language, verify against the Income-tax Department at incometax.gov.in and the SEBI circular text itself. Nothing in the plan label alters your slab; only your holding period and gain size do.

Who Should Pick Which

The decision rests on one honest question: do you need advice, and if so, is the Regular Plan's embedded commission a fair price for it? For a self-directed investor who researches funds, tracks the SEBI slab-driven TER, and rebalances without hand-holding, the Direct Plan is almost always the rational default - the roughly 1.00% annual saving in the illustration above is pure, compounding alpha with no offsetting risk. This is the profile of most readers who reach a comparison article like this one.

The Regular Plan earns its keep for investors who genuinely rely on a distributor or a mutual fund distributor-turned-advisor for asset allocation, behavioural discipline during drawdowns, and paperwork. If that guidance stops you from panic-selling one 30% market fall, it can be worth far more than the commission over a lifetime. The mistake is paying Regular-Plan TER while receiving no advice at all - a surprisingly common outcome for legacy folios opened years ago and never reviewed.

A middle path exists for a fee: engage a SEBI-registered investment adviser (RIA) who charges a transparent fee and directs you into Direct Plans, so you pay explicitly for advice rather than through an opaque, AUM-linked trail commission that compounds for decades. Whichever route you choose, first audit every existing folio: identify which are Regular Plans, check the actual TER against the slab ceiling, and convert to Direct where you are getting no service in return. For the estate-planning side of that same audit, note that SEBI now lets you name up to 10 nominees on a folio. And before you compare two funds on cost alone, confirm they sit in the same category using SEBI's own large-, mid- and small-cap definitions.

FAQ

What is the maximum expense ratio a mutual fund can charge in India?

For an open-ended equity scheme, the SEBI ceiling ranges from 2.25% on the first Rs 500 crore of AUM down to 1.05% above Rs 50,000 crore, per circular SEBI/HO/IMD/DF2/CIR/P/2018/137 dated 22 October 2018. Debt schemes are capped 0.25% lower in each slab, at 0.80% above Rs 50,000 crore. Funds may add up to 0.30% for B30-city inflows.

Why is the Direct Plan cheaper than the Regular Plan of the same fund?

The Regular Plan's TER includes distribution commission paid to your intermediary; the Direct Plan excludes it. Since 1 January 2013 SEBI has required every scheme to offer a Direct Plan, giving self-directed investors a lower expense ratio and a higher NAV for the identical portfolio and fund manager.

How much does a 1% TER difference actually cost over 20 years?

On a purely illustrative Rs 10 lakh lump sum compounding at a hypothetical 12% gross return, a 0.75% TER grows to about Rs 84.3 lakh while a 1.75% TER grows to roughly Rs 70.4 lakh - a gap of nearly Rs 14 lakh, before tax, from a 100 basis-point cost difference. Model your own figures on the lump sum and SIP calculators.

How are equity mutual fund gains taxed after 23 July 2024?

LTCG on equity units held over 12 months is taxed at 12.5% with the first Rs 1,25,000 of annual gains exempt; STCG on units held 12 months or less is taxed at 20%. A 4% health and education cess applies on top. Indexation is not available on equity LTCG.

Does switching from Regular to Direct trigger tax?

Yes. Moving from a Regular Plan to a Direct Plan of the same scheme is treated as a redemption and fresh purchase, so any gain on the redeemed units is taxable under the LTCG or STCG rules applicable to the holding period. Factor the Rs 1,25,000 LTCG exemption into the timing of the switch.

What is the B30 incentive in the TER structure?

SEBI allows a fund to charge up to an additional 0.30% (30 basis points) of TER on inflows from beyond the top 30 cities, to encourage mutual fund penetration outside metros. It is over and above the base slab ceiling and applies only to the qualifying B30 portion of assets.

Is the TER fungible, and what does that mean for me?

Under Regulation 52 of the SEBI (Mutual Funds) Regulations, 1996, the AMC can allocate the total expense across sub-heads as it chooses, provided the aggregate stays within the slab ceiling. For you, only the headline TER against your plan matters - that single number is what erodes your compounding every day.