Understanding Expense Ratio
The Total Expense Ratio (TER) is the annual fee that mutual fund houses charge you for managing your money. It covers fund management fees, agent commissions, registrar fees, and marketing expenses. Expressed as a percentage of your total investment.
If a fund has an Expense Ratio of 2%, it means ₹2 is deducted for every ₹100 you have invested, every single year. This deduction happens daily from the fund's Net Asset Value (NAV), so you never see a "bill" for it—it just silently reduces your returns.
TER Impact Formula
If a fund earns 15% and TER is 2%, your actual return is 13%.
Why 1% Matters More Than You Think
The Silent compounder
Impact: Lose 20-30% of Wealth
A 1% higher fee doesn't just mean 1% less money. Over 20 years, it means the 1% you paid also doesn't earn any compound interest.
Regular vs Direct
Difference: 0.5% - 1.5%
Regular Plans pay commissions to distributors (agents/banks). Direct Plans cut out this middleman, lowering the TER and boosting your returns.
Daily Deduction
Mechanism: Daily NAV Adjustment
TER is not a one-time fee. It is calculated on your daily market value. As your corpus grows, the absolute fee amount grows significantly.
The Cost of "Free" Advice
Impact of 1% Extra Fee over 25 Years
Wealth Difference:
- Direct Plan Corpus (12%): ₹1.89 Crores
- Regular Plan Corpus (11%): ₹1.62 Crores
- Loss due to 1% fee: ₹27 Lakhs!
Key Insight: That "small" 1% fee cost you enough to buy a brand new car! Always choose Direct Plans unless you need professional guidance.
How to Check Expense Ratio?
Check Factsheet
Every mutual fund releases a monthly factsheet listing the TER for both Direct and Regular plans.
Compare Plans
Direct plans will always have a lower TER than Regular plans for the same scheme.
Use Our Tool
We have built a dedicated tool to compare TERs of over 2000 schemes instantly.
Common TER Mistakes
Ignoring TER for Performance
Sometimes a fund with high TER outperforms significantly. Don't pick a bad fund just because it has low TER. Performance (Net of TER) matters most.
Sticking to Regular Plans
Many investors start with banks/apps that sell Regular plans and never switch.
Check Your Fund's Hidden Cost
Use our specialized calculator to see exactly how much you are paying in commissions for your specific fund.