What is the expense ratio in mutual funds?
The expense ratio is the annual fee charged by a mutual fund to manage your investment. It represents the fund’s operating costs—such as management fees, administrative charges, registrar fees, and marketing expenses—expressed as a percentage of the fund’s daily net assets.
For example, if a mutual fund scheme has an expense ratio of 1%, it means that 1% of your investment is used annually to cover these costs. The expense is deducted on a daily basis before calculating the fund’s Net Asset Value (NAV), which is why investors don't see it as a separate charge.
Why expense ratio matters?
- Directly affects your investment returns—higher ratio = lower net gains
- Passive funds like index funds tend to have lower expense ratios
- Actively managed funds generally charge higher ratios due to research and strategy costs
- The rate may vary between regular and direct plans of the same scheme
What if...
| Scenario | Explanation |
|---|
| You’re comparing two funds | Lower expense ratio may help maximise net returns, assuming similar performance. |
| You invest in direct plans | Direct plans exclude distributor commissions and typically have lower ratios. |
| You choose active management | Expect a slightly higher expense ratio in exchange for potential outperformance. |
| You want to check the ratio | Refer to the latest factsheet published by the AMC or visit their official website. |
Even small differences in expense ratios can impact long-term returns. Always evaluate the cost-to-performance balance before choosing a fund.
Last updated: 16 Jun 2025
Related Articles
What are Direct Mutual Funds on FYERS?
When investing in mutual funds through FYERS, you'll notice the term Direct Mutual Funds. These funds offer the same portfolio as regular plans but without distributor commissions, often resulting in better returns over the long term. What are Direct ...
What charges apply for investing in mutual funds through FYERS?
If you're investing in mutual funds via FYERS, you're benefiting from a cost-effective platform. Most actions, including purchasing, are free of charge. However, there is one specific fee applicable at the time of redemption. Here’s a breakdown of ...
Can I Buy Regular Mutual Funds in FYERS?
Regular Mutual Funds are the funds bought by Mutual fund brokers, distributors & advisors. Currently, we are not catering to the services of Regular mutual funds. However, you can invest in Direct mutual funds through FYERS at Zero commissions. To ...
What are balanced/hybrid funds in mutual funds?
Balanced or hybrid mutual fund schemes are designed to offer a mix of equity and debt investments within a single portfolio. These funds aim to generate moderate returns by balancing capital growth (via equities) with income stability (via debt ...
What are closed-ended funds/schemes in mutual funds?
Closed-ended mutual fund schemes are structured investment options that accept subscriptions only during a fixed period known as the New Fund Offer (NFO). These schemes have a predetermined maturity date—typically between 3 to 5 years—and do not ...