Total Expense Ratio (TER) is the all-inclusive annual cost of running a mutual fund scheme, expressed as a percentage of AUM — the number that SEBI regulates and discloses mandatorily.
TER is the official term used by SEBI and AMCs for a fund's total annual running cost. It includes the management fee (paid to the fund manager), administrative costs, custodian fees, marketing expenses, distributor commissions (in Regular plans), audit fees, and other operating expenses. SEBI caps TER based on fund category and AUM size. TER is deducted daily from the fund's NAV — you never pay it separately; it's silently embedded in the daily NAV. TER of a Direct Plan is always lower than a Regular Plan by the distributor commission amount.
TER is the yearly fee for running your mutual fund, expressed as a percentage. A TER of 1.5% means ₹1.50 is deducted annually for every ₹100 you have invested. It reduces your return by that amount. If your fund earns 12% before costs and TER is 1.5%, your net return is 10.5%. Lower TER = more of the gross return reaches you. This is why index funds (TER of 0.05–0.2%) outperform many active funds over long periods.
SEBI sets maximum TER limits by category: e.g., equity funds can charge up to 2.25% of the first ₹500 crore AUM (slabs reduce as AUM grows).
TER is deducted daily in tiny fractional amounts from the fund's asset value before NAV is published.
Direct Plan TER = Base expense ratio + AMC management fee (no distributor commission).
Regular Plan TER = Direct Plan TER + distributor trail commission.
AMCs must disclose TER daily on their websites and via AMFI.
₹10 lakh invested for 20 years, gross return 12%: - Fund A (TER 0.1%): net return 11.9% → ₹93 lakh - Fund B (TER 1.5%): net return 10.5% → ₹73 lakh The 1.4% TER difference costs ₹20 lakh — 20% of the corpus — over 20 years.