The annual cost of managing a mutual fund, expressed as a percentage of its average daily net assets. Also called Total Expense Ratio (TER).
The Expense Ratio (or Total Expense Ratio) is the annual fee charged by a mutual fund to cover management, administrative, and marketing costs. It is deducted from the fund's NAV daily, meaning NAV is always reported net of this charge.
If a fund has an expense ratio of 1.5%, and you invest ₹1,00,000, you pay ₹1,500 per year to the fund house — not as a separate bill, but deducted invisibly from the fund's NAV. Lower expense ratios directly improve your net returns.
The expense ratio includes fund manager fees, registrar fees, custodian fees, marketing costs, and other operational expenses.
It is divided by 365 and deducted from the portfolio's gross NAV every single day.
SEBI caps TER: for equity funds, maximum 2.25% for AUM up to ₹500 crore, tapering to 1.05% for AUM above ₹50,000 crore.
Direct plans always have lower TERs than regular plans because they exclude distributor commissions.
Monthly SIP: ₹10,000 | Period: 20 years | Assumed gross return: 14% Fund A (TER 0.5%): Net return 13.5% → Corpus: ~₹1.25 crore Fund B (TER 1.5%): Net return 12.5% → Corpus: ~₹1.07 crore Difference: ₹18 lakh — purely from a 1% TER gap.