The B-30 incentive and daily TER disclosure rules that affect what your fund charges

When you buy an equity mutual fund in India, the single largest recurring cost is the Total Expense Ratio (TER) — a percentage of assets that the fund deducts every day from its Net Asset Value before you ever see a return. SEBI's circular SEBI/HO/IMD/DF2/CIR/P/2018/137, dated 22 October 2018, reset both the ceiling on that charge and how visibly it has to be shown, and those two levers still decide what you pay in 2026.

Two provisions from that circular matter most to a household investor. The first lets a fund add up to 30 basis points (0.30%) to its TER on money that flows in from beyond the top-30 (B-30) cities. The second forces every asset management company (AMC) to publish its scheme-wise TER daily, both on its own website and on the industry body AMFI's site, so the figure can no longer hide in a half-yearly document. You can read a plain-language definition of the charge on our expense ratio glossary page.

This piece compares the two versions of the same scheme you can actually buy — the Direct plan against the Regular plan — because the distributor commission and that B-30 top-up are exactly what separate their costs. A persistent 1 percentage-point gap in TER is not trivial: over 20 years it can quietly remove close to a fifth of your final corpus, an effect you can reproduce yourself in the SIP calculator.

What SEBI lets a fund charge — the slabs, the B-30 top-up and daily disclosure

The 2018 circular ties the maximum TER to a scheme's assets under management (AUM) on a sliding scale, under Regulation 52 of the SEBI (Mutual Funds) Regulations, 1996. For an open-ended equity scheme the base ceiling starts at 2.25% on the first Rs 500 crore of AUM and falls to 1.05% once AUM crosses Rs 50,000 crore. Debt schemes are pegged 0.25% lower at every step. The logic is simple: bigger funds enjoy economies of scale, so their investors should pay proportionately less. AUM itself is explained on our assets under management glossary entry.

On top of that base slab, the circular permits two add-ons. A fund may charge up to 0.05% (5 basis points) of daily net assets in lieu of exit load, cut sharply from the earlier 0.20% limit, and up to 0.30% for eligible B-30 inflows. Goods and Services Tax on the investment-management fee is levied over and above all of these, so the number a fund quotes is not always the last rupee that leaves your account.

The B-30 top-up is conditional, not automatic. Under SEBI Circular 2018/137, the extra 0.30% applies only when new inflows from beyond the top-30 cities are at least the higher of (a) 30% of the scheme's gross new inflows or (b) 15% of the scheme's year-to-date average AUM. It is restricted to inflows from retail (individual) investors, is paid to the distributor as trail commission rather than upfront, and is clawed back if the investment is redeemed within one year. The stated purpose, per the SEBI circular, is to reward genuine penetration of small towns rather than to subsidise churn in the big metros.

Daily disclosure is the counterweight to all this complexity. Since the same 2018 circular, every AMC must display scheme-wise, date-wise TER under a distinct head, "Total Expense Ratio of Mutual Fund Schemes", on its website and on the AMFI website in a downloadable spreadsheet, and must notify existing investors before any change to the TER takes effect. Before this rule, an investor typically saw the ratio only twice a year; from 2018 the figure is a click away every business day.

Side-by-Side Comparison

Every open-ended scheme launched since 1 January 2013 offers two variants that share the same portfolio, the same fund manager and the same NAV methodology: a Regular plan and a Direct plan. The only structural difference between them is cost, which is why comparing them isolates the effect of TER cleanly. The mechanics of the price you transact at are covered on our NAV glossary entry.

A Regular plan bakes in distribution commission — and, where the conditions are met, the B-30 trail — so its TER sits higher. A Direct plan carries no commission at all, so SEBI requires its TER to be lower than the Regular plan by exactly the distribution expense that has been stripped out. On a typical large-cap equity fund the gap runs from about 0.60% to 1.00% a year, and on some regular plans it is wider still once the B-30 top-up is included.

The arithmetic of a 1 percentage-point TER gap is the part investors underestimate. A haircut of roughly 1% of assets every year compounds: over a 20-year horizon it reduces the terminal value by approximately 18%, because 0.99 raised to the 20th power is about 0.82, and this holds true on whatever gross return path the market actually delivers. On a Rs 10 lakh one-time investment that difference can run well into several lakh over two decades — you can model the compounding for your own numbers in the lumpsum calculator. Crucially, this gap is not a claim about any fund beating its benchmark; it is the cost drag that applies identically to both plans of the same fund.

Tax Treatment

Costs are only one leak in the bucket; tax is the other, and for equity funds the rules changed materially in 2024. An equity-oriented fund is one that holds at least 65% of its assets in Indian equities, and its capital-gains treatment differs from that of a debt fund. Units held for more than 12 months produce long-term capital gains (LTCG); units held for 12 months or less produce short-term capital gains (STCG).

Since Budget 2024 — for transfers on or after 23 July 2024, under the Finance (No. 2) Act, 2024 — LTCG on equity funds is taxed at 12.5% on gains above a Rs 1,25,000 annual exemption, with no indexation benefit. That exemption is a per-financial-year threshold across all equity LTCG, so realising gains in tranches can keep more of each year's profit inside the exempt band. The official position is set out by the Income Tax Department at incometax.gov.in, and the concept is defined on our LTCG glossary page.

STCG on equity funds was also raised in the same Budget: for transfers on or after 23 July 2024 the rate is 20%, up from the earlier 15%. Because the short-term rate is materially higher than the long-term rate, selling equity units inside the 12-month window is expensive twice over — once in the higher headline rate and again in the exemption you forgo. Our STCG glossary page sets out the holding-period test.

A special case worth flagging is the Equity Linked Savings Scheme (ELSS), an equity fund with a statutory three-year lock-in that also qualifies for a Section 80C deduction of up to Rs 1,50,000. That deduction is available only under the old tax regime; the new regime, which has been the default since FY 2023-24, does not allow 80C, so an ELSS bought purely for the deduction makes sense only if you have opted for the old regime. Its gains, once the lock-in ends, follow the same 12.5% LTCG and 20% STCG treatment as any equity fund. You can size a tax-saving allocation in the ELSS calculator, and the category itself is defined on our ELSS glossary entry.

Who Should Pick Which

The choice between plans is really a choice about whether you are paying for advice, and it maps onto a few clear investor profiles rather than a single right answer.

The do-it-yourself investor should almost always hold Direct plans. If you select and review funds yourself, the 0.60% to 1.00% you save each year in a Direct plan is effectively free return, and, as shown above, a 1 percentage-point saving compounds to roughly 18% more corpus over 20 years. There is no B-30 top-up in a Direct plan under any circumstances, because there is no distributor to receive the trail. Investors who track this over long horizons can sanity-check their expected outcomes in the mutual fund returns calculator.

The investor who genuinely needs hand-holding faces a fairer trade. If a distributor helps you stay invested through a market fall, review your asset mix and complete paperwork, the extra TER in a Regular plan is the price of that service, and for many first-time investors it is money well spent. The alternative is to pay a SEBI-registered investment adviser a flat fee and hold Direct plans, which tends to be cheaper once your portfolio is large enough that a percentage-based commission exceeds a fixed advisory charge.

The small-town or B-30 investor should look closely at the label. If you invest from a city beyond the top 30, your inflow into a Regular plan may carry the additional 0.30% and, since the 2018 circular, that top-up is clawed back if you redeem within one year — so a Regular plan suits you only if you are committing for the long term. A Direct plan sidesteps the commission and the top-up entirely.

Finally, the tax-sensitive investor should let the holding period drive the decision more than the plan type. Because STCG at 20% is materially costlier than LTCG at 12.5%, holding equity units past the 12-month mark is usually worth more than any plausible saving from switching plans, whichever plan you own. Choosing between dividend-style payouts and growth accumulation is a related decision you can test in the IDCW vs Growth calculator.

FAQ

What exactly is the B-30 additional expense on a mutual fund?

It is an extra charge of up to 0.30% (30 basis points) of a scheme's daily net assets that a fund may add to its TER on qualifying inflows from beyond the top-30 cities, permitted by SEBI Circular 2018/137 dated 22 October 2018. It applies only to retail-investor inflows, is paid to the distributor as trail commission, and is reversed if the investment is redeemed within one year.

Does a Direct plan ever charge the B-30 top-up?

No. A Direct plan has no distributor and therefore no commission or B-30 trail, so its TER is always lower than the matching Regular plan by the full distribution expense. This has been the rule since Direct plans became mandatory for open-ended schemes on 1 January 2013.

Where can I check my fund's current TER?

Since the 2018 circular, every AMC must publish scheme-wise TER daily on its own website and on the AMFI website under the head "Total Expense Ratio of Mutual Fund Schemes", in a downloadable spreadsheet, and must tell existing investors before it changes the figure. That makes the current TER available every business day rather than only in periodic statements.

How are gains from equity mutual funds taxed in 2026?

For transfers on or after 23 July 2024, long-term gains (units held more than 12 months) are taxed at 12.5% above a Rs 1,25,000 annual exemption, with no indexation, while short-term gains (12 months or less) are taxed at 20%, per the Finance (No. 2) Act, 2024 as reflected on incometax.gov.in.

Is the Section 80C deduction on ELSS available in the new tax regime?

No. The Section 80C deduction of up to Rs 1,50,000, which includes ELSS investments, is available only under the old tax regime. The new regime, the default since FY 2023-24, does not permit 80C, so an ELSS bought for the deduction only helps if you have opted for the old regime.

How much does a 1% higher TER actually cost me over time?

A persistent 1 percentage-point TER gap removes about 1% of assets each year, which compounds to roughly an 18% smaller corpus over 20 years, because 0.99 to the power of 20 is about 0.82. The effect grows with the horizon, so the longer you invest, the more the plan choice matters.

Can a fund raise its TER without telling me?

No. The 2018 circular requires the AMC to notify investors of the scheme, through a notice on its website and by email or SMS, before any change in the base TER takes effect, and to keep the daily-disclosed figure current. The slab ceilings themselves cannot be exceeded, ranging from 2.25% down to 1.05% for equity schemes as AUM grows.