Expense Ratio

The expense ratio — also called Total Expense Ratio (TER) in India — is the all-in annual fee a mutual fund or ETF charges its investors, expressed as a percentage of assets under management. It bundles the fund manager's salary, administration, audit, registrar fees, marketing, and (in regular plans) broker commissions. Because it is deducted daily from NAV, you never see the fee on a statement — but it compounds silently against your return every single day you hold the fund.

The corrosive math matters more than most investors realise. A 1.5% expense ratio on a ₹10 lakh portfolio means ₹15,000 flows out of the fund each year. Over a 30-year holding period at 12% gross returns, that 1.5% drag leaves you with roughly ₹1.88 crore instead of ₹2.99 crore — a cost of more than ₹1.1 crore in final wealth, or roughly 37% of what you would have had. Lower the ratio to 0.2% (an index fund) and most of that gap closes.

SEBI caps TER on Indian equity mutual funds at 2.25% for the first ₹500 crore AUM, sliding down to 1.05% above ₹50,000 crore. Direct plans remove broker commission and are typically 0.5–1.0% cheaper than regular plans of the same scheme.

Compare two funds' expense ratios using our lump-sum / SIP calculator — enter the same gross return and toggle the fee to see the long-run wealth difference.