Investor Education from TER: How Mutual Fund Fees Fund Financial Literacy in India
The Total Expense Ratio (TER) in Indian mutual funds includes a mandatory component earmarked for investor education and awareness activities. SEBI ’s regulations require AMCs to allocate a specified basis-point portion of TER towards investor education, with the funds pooled and administered by AMFI through its investor education programmes – primarily the Mutual Funds Sahi Hai campaign. This mechanism represents one of India’s most distinctive financial regulatory innovations: using industry-generated fees to fund the education of the very investors whose participation the industry seeks.
TER structure and the investor education component
Total Expense Ratio overview
The TER is the annual fee charged by an AMC on a mutual fund scheme’s assets. It is expressed as a percentage of average daily net assets and is deducted daily from the scheme’s NAV. TER includes:
- Management fees (fund manager and investment team compensation).
- Administration and operating expenses.
- Custodian fees.
- RTA fees (CAMS/KFin).
- Audit fees.
- Marketing and distribution expenses.
- Investor education and awareness (mandatory allocation).
SEBI sets maximum expense limits by AUM slab. Under the SEBI (Mutual Funds) Regulations 2026, in force from 1 April 2026, the base expense ratio for an equity scheme is capped at 2.10% on the first Rs 500 crore of daily net assets, against 2.25% under Regulation 52 of the 1996 regulations until 31 March 2026; the cap falls on larger slabs. Direct plans have lower TER (no distribution commission component).
Investor education allocation
Para 11.9.1 of the SEBI Master Circular for Mutual Funds dated 20 March 2026 requires AMCs to set apart each year, within the base expense ratio limits of Regulation 66(7), 0.02% of daily net assets for most schemes, 0.01% for ETFs and index funds, and nothing for fund of funds investing more than 80% in domestic funds. The rule began as clause F of SEBI circular CIR/IMD/DF/21/2012 of 13 September 2012. Only a portion goes to AMFI: para 11.9.3 requires “certain portion” to be set aside for industry-level work, and the share, reported in the press as half since 2016, is fixed by SEBI letters that are not published. The rest stays with each AMC for its own programmes.
No AMFI or SEBI figure for the total set aside or spent is published. Multiplying industry assets by 0.02% overstates the amount, because passive schemes set aside half that rate and domestic fund of funds nothing. Since SEBI circular HO/(83)2025-IMD-POD-1/I/152/2025 of 27 November 2025, the same 2 basis points also pay distributors an extra commission, capped at Rs 2,000, for new investors from beyond the top 30 cities and new women investors.
AMFI’s investor education function
Pooling and governance
AMFI administers the pooled investor education fund through its Investor Education Committee. The committee, comprising representatives of member AMCs, approves the annual budget, media plan, campaign creative, and programme calendar. AMFI’s Investor Education Committee has oversight of:
- Television campaign production and airing (Mutual Funds Sahi Hai and its variants).
- Digital advertising (YouTube, social media platforms).
- Print and outdoor advertising.
- Financial literacy workshops in schools, colleges, and corporate offices.
- AMC-level co-branded investor education events.
Mutual Funds Sahi Hai
The Mutual Funds Sahi Hai campaign, launched on 15 March 2017, is the flagship deployment of the investor education TER allocation. Its scale – nationwide television, digital, and outdoor advertising reaching hundreds of millions of viewers in Hindi and regional languages – was made possible by the collective funding from the TER investor education component. No individual AMC could have funded the campaign at this scale independently; the pooled model created a public good for the entire industry.
Individual AMC investor education obligations
Beyond the AMFI pool, individual AMCs are permitted and encouraged to undertake their own investor education activities. SEBI’s guidelines allow AMCs to count AMC-level investor education spend towards their regulatory obligation, subject to certain conditions:
- Content must be educational (not promotional of specific schemes or AMC).
- Must not make performance claims or specific recommendations.
- Must be targeted at expanding investor knowledge and awareness.
AMC-level investor education includes campus visits, digital content (YouTube channels, podcasts), financial planning webinars, and SIP calculator tools on AMC websites.
SEBI’s Investor Protection and Education Fund (IPEF)
SEBI maintains a separate Investor Protection and Education Fund (IPEF), funded from:
- Unclaimed dividends transferred from listed companies.
- Fines and penalties recovered from market participants.
- Interest earned on IPEF corpus.
IPEF-funded activities overlap with AMFI’s investor education activities but operate independently. IPEF supports SEBI’s own investor education website (investor.sebi.gov.in), financial literacy curriculum in schools, and the SEBI-facilitated Investor Education Programme (IEP) in cities across India.
Effectiveness and measurement
The effectiveness of the TER-funded investor education model is difficult to measure precisely. Proxies include:
- SIP account growth: The correlation between Mutual Funds Sahi Hai campaign launch (2017) and the acceleration in SIP registrations is widely cited.
- New investor count: Unique PAN-based investor count growth from 2 crore in 2017 to 5 crore by 2025 occurred during the peak campaign period.
- B-30 city inflow share: Geographic expansion of mutual fund investing into smaller cities accelerated post-2017.
- SEBI investor awareness surveys: SEBI’s periodic surveys show improvement in awareness metrics for mutual funds, though absolute literacy levels remain low.
Criticism and limitations
Some industry observers have questioned whether the TER-funded model creates a perverse incentive: AMFI, funded by AMC members, may be motivated to promote mutual funds generically (even if other financial products might sometimes be more suitable) rather than to provide balanced financial literacy. The campaign’s explicit objective – to increase mutual fund adoption – aligns AMFI’s interests with those of its AMC members, not necessarily with the objective of optimal investor outcomes.
SEBI has addressed this partially by requiring AMFI’s investor education content to avoid promotion of specific schemes or AMC brands and to focus on category-level education.