What is Expense Ratio?
Annual fee charged by a mutual fund scheme, expressed as a percentage of AUM.
Understanding Expense Ratio
The expense ratio (also called Total Expense Ratio or TER) is the annual fee charged by a mutual fund scheme to cover management fees, administrative costs, and distributor commissions. It is expressed as a percentage of daily average net assets.
SEBI caps the TER for different fund categories. For equity funds, the maximum TER ranges from 1.05% to 2.25% depending on AUM. Debt funds have lower caps. The TER is deducted daily from the scheme's NAV — investors never pay it directly, but it reduces their returns.
For distributors, the TER is important because the trail commission they earn is a subset of it. The difference between a Regular plan's TER and a Direct plan's TER approximately equals the distributor's commission rate.
“For Indian IFAs, a clear understanding of expense ratiois essential to managing a compliant and profitable advisory practice.”
Why Expense Ratio Matters for Your Practice
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