What Exactly is the Expense Ratio?
The expense ratio (also called TER — Total Expense Ratio) is the annual cost deducted daily from your mutual fund's NAV to cover fund management fees, administrative costs, marketing, and compliance. It is expressed as a percentage of average daily AUM.
If a fund has a 1.5% expense ratio and its gross return is 13%, your net return is 11.5%. The fund house keeps 1.5% — every year, regardless of performance.
The True Cost Over Time
Here's what a 1% expense ratio difference costs on a ₹10 lakh investment over 20 years at 12% gross returns:
| Expense Ratio | Net Return | Final Corpus | Difference |
|---|---|---|---|
| 0.10% (Index Fund) | 11.90% | ₹91.4 lakhs | — |
| 0.60% | 11.40% | ₹83.0 lakhs | ₹8.4 lakhs less |
| 1.50% | 10.50% | ₹71.9 lakhs | ₹19.5 lakhs less |
| 2.50% | 9.50% | ₹61.4 lakhs | ₹30.0 lakhs less |
SEBI Expense Ratio Limits
SEBI caps the maximum TER based on fund AUM. Larger funds must charge less. Direct plans have lower expense ratios than regular plans — typically 0.5–1.0% lower — because there is no distributor commission.
Always Choose Direct Plans
The simplest way to minimise expense ratio impact: always invest via Direct Plan, not Regular Plan. On QuantLogiq, all fund data is shown for Direct Plans. The difference of 0.5–1% in annual expense ratio translates to ₹10–20 lakh on a 20-year horizon.
Expense ratio is the only guaranteed return — guaranteed to reduce your wealth. Minimise it ruthlessly.