NISM Series VA 2026 – Chapter 7: NAV, Total Expense Ratio and Pricing of Units | Updated Short Notes
This is Chapter 7 of the updated 2026 NISM Series VA short notes. The TER framework has been significantly restructured under SEBI (Mutual Funds) Regulations, 2026. The old single TER cap is replaced by a new Base Expense Ratio (BER) structure. This is one of the most heavily tested chapters in the NISM VA exam.
Internal Link: ← Chapter 6 | Free NISM VA Mock Test 2026
⚠️ 2026 TER Update: Under SEBI 2026 regulations, the Total Expense Ratio framework has been restructured: (1) Base Expense Ratio (BER) = core AMC management fee only; (2) Statutory levies (STT, GST, stamp duty, SEBI fees, exchange charges) are now charged separately at actuals; (3) The additional 5 bps allowance for exit-load schemes has been removed; (4) Brokerage caps halved; (5) Performance-linked expense structures introduced for select schemes.
Fair Valuation Principles (2026)
AMCs are required to compute and carry out valuation of investments made by their schemes in accordance with the investment valuation norms specified by SEBI. The primary objective: fair treatment to all investors at all points of time — existing investors as well as investors seeking to buy or redeem units.
NAV Formula (Unchanged)
NAV = (Current Value of Investments + Income Accrued + Current Assets − Current Liabilities − Accrued Expenses) ÷ Number of Outstanding Units
- NAV is the true per-unit market value of a scheme
- Calculated and published every business day
- Rises when investments perform well; falls when they lose value
Mark to Market (MTM)
Every security in the portfolio is valued at its current market price daily. This is called Mark to Market (MTM). Investors buy and sell units based on NAV, which is why accurate daily MTM is essential.
New TER/BER Structure Under SEBI 2026 Old Structure (pre-April 2026)
A single Total Expense Ratio (TER) cap that included: fund management fees, operating costs, brokerage, STT, GST, stamp duty, and an extra 0.05% allowance for exit-load schemes — all bundled together.
New Structure (from April 1, 2026)
Three distinct components:
| Component | What It Covers | How Charged |
|---|---|---|
| Base Expense Ratio (BER) | Core AMC fund management and advisory fees only | Subject to SEBI-set limits (see table below) |
| Brokerage | Transaction brokerage for buying/selling securities | Charged at actuals, subject to new lower caps |
| Statutory Levies | STT, CTT, GST, stamp duty, SEBI fees, exchange charges | Charged at actuals — no longer bundled in BER |
BER Limits — Key Exam Table (SEBI 2026)
| AUM Slab (Daily Net Assets) | BER – Equity Oriented | BER – Other Schemes |
|---|---|---|
| First ₹500 crore | 2.25% | 2.00% |
| Next ₹250 crore | 2.00% | 1.75% |
| Next ₹1,250 crore | 1.75% | 1.50% |
| Next ₹3,000 crore | 1.60% | 1.35% |
| Next ₹5,000 crore | 1.50% | 1.25% |
| Next ₹40,000 crore | Reduce by 0.05% for every ₹5,000 crore increase | |
| Balance | 1.05% | 0.80% |
| Index Funds / ETFs | 0.9% (reduced from 1.0%) | |
| Close-ended equity schemes | 1.0% (reduced from 1.25%) | |
| Liquid FoF | 0.9% | |
New Brokerage Caps
| Transaction Type | Old Cap | New Cap (2026) |
|---|---|---|
| Cash Market Transactions | 12 bps (0.12%) | 6 bps (0.06%) |
| Derivative Transactions | 5 bps (0.05%) | 2 bps (0.02%) |
Removed: Exit Load Allowance
Previously, schemes with exit loads could charge an extra 0.05% (5 bps). This additional allowance has been permanently removed under SEBI 2026.
New: Performance-Linked Expenses
SEBI 2026 introduces the option for performance-linked expense structures for select schemes — meaning AMCs can charge a higher BER if the fund outperforms its benchmark by a specified margin. This is designed to align fund manager incentives with investor returns.
Entry and Exit Load
| Type | Status | Key Fact |
|---|---|---|
| Entry Load | Banned by SEBI | Sale Price = NAV. No entry load permitted. |
| Exit Load | Still permitted | Difference between NAV and re-purchase price. Goes back into the scheme. |
TER for Segregated Portfolios (Side Pocketing)
When a segregated portfolio is created (side pocketing):
- AMC will not charge investment and advisory fees on the segregated portfolio
- BER/TER can be charged on a pro-rata basis only upon recovery of investments
- TER levied shall not exceed the simple average of such expenses
Quick Revision: 2026 BER/TER Key Facts
| Topic | Key Fact |
|---|---|
| NAV calculation frequency | Daily (every business day) |
| Entry load | Banned — Sale Price = NAV |
| Exit load | Permitted; goes back into the scheme |
| Old structure | Single TER cap (bundled all costs) |
| New 2026 structure | BER + Brokerage + Statutory Levies (charged separately) |
| Statutory levies | Charged at actuals, separately from BER |
| Exit load extra allowance | Removed (was 5 bps) |
| Index Fund/ETF cap | 0.9% (reduced from 1.0%) |
| Close-ended equity BER cap | 1.0% (reduced from 1.25%) |
| Cash market brokerage cap | 6 bps (halved from 12 bps) |
| Derivative brokerage cap | 2 bps (reduced from 5 bps) |
← Previous: Chapter 6 | Next → Chapter 8 – Taxation
NISM Series VA 2026 – Chapter 8: Taxation in Mutual Funds | Updated Short Notes
This is Chapter 8 of the updated 2026 NISM Series VA short notes. The mutual fund taxation framework has seen major changes since Budget 2024 (Finance (No. 2) Act 2024) which apply in FY 2025-26. These updated tax rates are what the NISM VA 2026 exam will test.
Note: Tax laws can change. Always refer to the latest Finance Act provisions. These notes reflect the framework under Finance Act 2025, applicable in FY 2025-26.
Internal Link: ← Chapter 7 | Free NISM VA Mock Test 2026
⚠️ Key 2024–2026 Tax Changes: Budget 2024 (effective July 23, 2024) revised capital gains tax rates. STCG on equity MFs increased to 20% (was 15%). LTCG on equity MFs increased to 12.5% (was 10%). LTCG exemption raised to ₹1.25 lakh per year (was ₹1 lakh). Indexation benefit removed for all asset classes except specific cases. Debt MFs (bought after April 1, 2023) continue to be taxed at slab rate regardless of holding period.
Overview: Taxation of Mutual Funds (FY 2025-26)
Core principle: "It is not how much you earn, but how much you keep after taxes that matters."
A mutual fund is a pass-through vehicle. The fund itself pays no tax. All tax obligations pass to the investor. Tax is assessed at two levels: income earned by the scheme, and income earned by the investor.
Updated Capital Gains Tax Rates — FY 2025-26 Equity Mutual Funds (65%+ in Indian equity)
| Type | Holding Period | Tax Rate (from July 23, 2024) | Old Rate (before July 23, 2024) |
|---|---|---|---|
| STCG | ≤ 12 months | 20% | 15% |
| LTCG | > 12 months | 12.5% (first ₹1.25 lakh exempt) | 10% (first ₹1 lakh exempt) |
Debt Mutual Funds
| Purchase Date | Tax Treatment |
|---|---|
| Bought on or after April 1, 2023 | All gains taxed at slab rate regardless of holding period. No LTCG benefit. (Section 50AA) |
| Bought before April 1, 2023 | LTCG (held >24 months): 12.5% without indexation (Budget 2024 removed indexation). STCG: slab rate. |
Gold ETFs, Gold MFs, International Equity FoFs, Silver ETFs
| Type | Holding Period | Tax Rate (from July 23, 2024) |
|---|---|---|
| STCG | ≤ 12 months | Slab rate |
| LTCG | > 12 months | 12.5% without indexation |
Hybrid Funds
- If >65% in equity → taxed like equity mutual funds (STCG 20%, LTCG 12.5%)
- If <65% in equity and >65% in debt → taxed like debt funds (slab rate)
- If <65% in both equity and debt → 12.5% LTCG after 24 months (for FoF-type structures)
LTCG Exemption — Updated 2024
The annual LTCG exemption for equity-oriented funds and listed equity shares has been increased from ₹1 lakh to ₹1.25 lakh per financial year (effective from FY 2024-25). This exemption applies only to gains from equity-oriented (65%+ in Indian equity) schemes.
Dividend / IDCW Taxation
- Dividends (renamed IDCW — Income Distribution cum Capital Withdrawal) from mutual funds are taxable in the hands of the investor at their applicable income tax slab rate
- TDS is deducted at 10% if dividend income exceeds ₹5,000 per financial year per investor per scheme (for resident investors)
- For NRI investors: TDS at 20% or as per DTAA, whichever is lower
Dividend Stripping (Unchanged Rule)
If an investor buys units within 3 months before a dividend record date and sells within 9 months after the record date, any capital loss from that transaction cannot be set off against capital gains (up to the value of the exempt dividend).
Securities Transaction Tax (STT)
| Transaction | STT Applicable? |
|---|---|
| Redemption/switch from equity-oriented MFs | ✅ Yes |
| Sale of equity MF units on stock exchange | ✅ Yes |
| Purchase of equity MF units | ❌ No |
| All transactions in debt MFs | ❌ No |
ELSS-Tax Saver Fund — Section 80C (Unchanged)
Renamed to ELSS-Tax Saver Fund under SEBI 2026. Tax benefit unchanged:
- Deduction up to ₹1.5 lakh per financial year under Section 80C
- Applies to individuals and HUFs
- Minimum equity allocation raised to 80% (was 65%) under SEBI 2026
- Lock-in period: 3 years (unchanged)
Note: Under the New Tax Regime (Section 115BAC), Section 80C deductions including ELSS are NOT available. Investors under the new tax regime cannot claim ELSS deductions.
Quick Revision: 2026 Taxation Key Facts
| Topic | Key Fact (FY 2025-26) |
|---|---|
| Equity MF STCG rate | 20% (raised from 15% in July 2024) |
| Equity MF LTCG rate | 12.5% (raised from 10% in July 2024) |
| LTCG annual exemption | ₹1.25 lakh (raised from ₹1 lakh in Budget 2024) |
| Equity holding period for LTCG | >12 months |
| Debt MF (bought after Apr 1, 2023) | All gains at slab rate regardless of holding period |
| Gold ETF / International Fund LTCG | 12.5% after 12 months (no indexation) |
| Indexation benefit | Removed (except specific pre-July 2024 real estate cases) |
| ELSS-Tax Saver Fund 80C benefit | Up to ₹1.5 lakh/year; 3-year lock-in; 80% min equity |
| ELSS under New Tax Regime | Section 80C deductions NOT available under New Tax Regime |
| Dividend stripping — buy window | Within 3 months before record date |
| Dividend stripping — sell window | Within 9 months after record date |
| STT on equity MF redemption | Applicable |
| STT on debt MF transactions | Not applicable |
| Dividend TDS threshold (resident) | ₹5,000 per FY per investor |
FAQs — Chapter 8 (2026 Updated) What is the capital gains tax on equity mutual funds in 2025-26?
Under Budget 2024 (effective July 23, 2024): Short-Term Capital Gains (STCG) on equity mutual funds are taxed at 20% (increased from 15%). Long-Term Capital Gains (LTCG — held more than 12 months) are taxed at 12.5% (increased from 10%), with the first ₹1.25 lakh of gains exempt per year.
How are debt mutual funds taxed in 2025-26?
For debt mutual funds purchased on or after April 1, 2023, all capital gains (regardless of holding period) are taxed at the investor's income tax slab rate. There is no LTCG benefit or indexation. For older units (bought before April 1, 2023), LTCG applies after 24 months at 12.5% without indexation.
Can ELSS investment be claimed under Section 80C under the New Tax Regime?
No. Section 80C deductions, including ELSS-Tax Saver Fund investments, are not available to taxpayers who have opted for the New Tax Regime (Section 115BAC). ELSS 80C benefits apply only under the Old Tax Regime.
Next → Chapter 9 – Investor Services
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