Under SEBI Regulation 52(6), what is the maximum permissible base Total Expense Ratio (TER) that an AMC can charge on the first ₹500 Crore of daily Net Assets for an open-ended actively managed Equity Scheme?

[ A ]Maximum 2.00% of daily Net Assets (Debt scheme limit).

[ B ]Maximum 2.25% of daily Net Assets.[ CORRECT ]

[ C ]Maximum 1.00% of daily Net Assets (Index fund limit).

[ D ]Maximum 5.00% of daily Net Assets.

Takeaway

Option B is correct: Maximum 2.25% of daily Net Assets.

Derivation

Regulation 52(6)(c) sets a graduated base TER schedule that declines as scheme AUM grows, and for an actively managed open-ended Equity Scheme the ceiling on the first ₹500 Crore of daily net assets is 2.25%. The schedule then steps down: 2.00% on the next ₹250 Crore, 1.75% on the next ₹1,250 Crore, 1.60% on the next ₹3,000 Crore, and so on, with a further 0.05% reduction for every additional ₹5,000 Crore slab. This tiering exists because larger AUM does not proportionally raise an AMC's fixed operating costs, so SEBI forces the cost-per-rupee-managed to fall as the scheme scales, passing efficiency gains back to unitholders rather than letting them accrue entirely to the fund house.

Why the others fail

A — Maximum 2.00% of daily Net Assets (Debt scheme limit).

2.00% is the statutory ceiling on the first ₹500 Crore for Debt schemes, which sit under a separate, lower TER schedule than actively managed Equity schemes.

C — Maximum 1.00% of daily Net Assets (Index fund limit).

1.00% is the base TER cap reserved for passive Index Funds and ETFs, whose lower operating costs justify a much tighter ceiling than active Equity schemes.

D — Maximum 5.00% of daily Net Assets.

5.00% would breach the statutory TER ceiling by a wide margin; no SEBI-regulated equity scheme is permitted to charge anywhere near this on its base slab.