कंटेंट
Investing in a mutual fund can be compared to owning a car, where both performance and ongoing costs play significant roles. In the realm of mutual funds, the Total Expense Ratio (TER) represents the operational costs incurred, which can diminish the overall returns of the investment. Even minor variations in TER can have substantial long-term effects on your investment outcomes. For instance, if two mutual funds provide identical gross returns, a fund with a 1% TER will yield a greater corpus compared to one with a 2% TER. Thus, comprehending TER is vital for selecting the right mutual fund.
This article explains what Total Expense Ratio is, how it is calculated, how it affects your returns, and what you should compare before investing.
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What is Total Expense Ratio (TER) in Mutual Funds?
Total Expense Ratio (TER) refers to the amount charged by an AMC in order to run and manage the mutual fund scheme on behalf of the investors. It is quoted in percentage of the average net asset value per day of the scheme.
TER includes charges like fees on management of the fund, administration costs, cost on serving the investors, costs of registration, cost of law suits, cost of auditing and cost of distribution. All these expenses are charged from the scheme's assets and thus, the investors need not bear these costs separately.
For instance, when a mutual fund has TER of 1.20%, then it implies that ₹1.20 is deducted annually out of every ₹100 invested. The deduction of the fee takes place automatically through the NAV of the scheme.
Despite being a very small percentage, TER may make a difference for investors who hold their investments in the scheme for several years.
Components of TER
The Total Expense Ratio covers the day-to-day costs of operating a mutual fund. These expenses ensure the scheme is managed efficiently and complies with regulatory requirements.
It generally includes:
- Management fee: Fee that goes to the fund manager and investment team for the management of the portfolio.
- Administrative expenses: Fee paid towards the administrative, technological, and other related operational expenses.
- Investor servicing costs: Includes customer support, account statements, transaction processing, and registrar and transfer agent services.
- Legal and audit expenses: Covers statutory audits, compliance, legal services, regulatory filings, and trustee-related expenses.
- Distribution expenses: Includes commissions paid to distributors and intermediaries for Regular Plans. Direct Plans do not include distributor commissions, which is why they usually have a lower TER.
लक्षात ठेवा: The exact expense components may vary slightly across schemes, but all charges remain within the limits prescribed by SEBI.
How is TER Calculated in Mutual Funds?
The TER has a direct effect on how well the mutual funds that you have invested in will perform as it is an amount which is subtracted from the total asset value of the scheme before coming up with the figure of NAV.
The difference may not be much in the short run but it becomes more apparent when investing for a longer time period.
उदाहरण
Assume two mutual funds generate the same gross return of 12% per year.
| तपशील |
फंड A |
फंड B |
| गुंतवणूक |
₹10,00,000 |
₹10,00,000 |
| Annual Return (Before TER) |
12% |
12% |
| TER |
1.00% |
2.00% |
| Net Return |
11% |
10% |
The investment fund with the low TER will be able to accumulate a much bigger corpus after 20 years since a bigger portion of your money will remain invested each year.
Do remember that there are other factors apart from TER. An investment fund with a marginally high TER can provide higher returns if it beats the benchmark consistently.
What is a Good TER for Mutual Funds?
Good TER depends on the type of mutual fund. Passive mutual funds tend to be less expensive since they replicate an index whereas actively managed mutual funds charge more for researching and managing the portfolio.
| स्कीमचा प्रकार |
Updated Revised Limit |
| Index Fund / ETF |
0.90% |
| Fund of Funds investing in liquid schemes / index funds / ETFs |
0.90% |
| Fund of Funds investing more than 65% in equity-oriented schemes |
2.10% |
| अन्य एफओएफ |
1.85% |
*Actual TER varies by scheme, AUM, and fund house.
In most cases, a lower TER is preferable, but it should be considered alongside the fund's performance, risk, and consistency.
SEBI Regulations on TER
SEBI’s revised mutual fund regulations, effective from 1 April 2026, changed the way expense ratios are structured and disclosed. The earlier broad TER-style presentation is now split more clearly into Base Expense Ratio (BER), brokerage, regulatory levies, and statutory levies.upstox+1
Under the revised framework, the Total Expense Ratio = BER + brokerage + regulatory levies + statutory levies, and statutory charges such as STT/CTT, GST, stamp duty, SEBI fees, and exchange fees are charged separately as applicable.angelone+1
This improves transparency because investors can now see what portion of the cost goes to AMC management and what portion is made up of execution-related and statutory charges.
Direct vs Regular Plan
Direct and Regular Plans invest in the same portfolio but differ in their expense ratio.
| फीचर |
थेट प्लॅन |
Regular Plan |
| Distributor Commission |
समाविष्ट नाही |
समाविष्ट |
| TER |
कमी |
उच्च |
| एनएव्ही |
उच्च |
कमी |
| लाँग-टर्म रिटर्न |
सामान्यपणे जास्त |
May be lower due to higher costs |
If you invest without a distributor, a Direct Plan can help reduce investment costs over the long term.
TER Across Different Types of Mutual Funds
Different categories of mutual funds have different operating costs.
| Mutual Fund Type |
Typical TER |
| इक्विटी फंड |
उच्च |
| डेब्ट फंड |
मध्यम |
| हायब्रिड फंड |
मध्यम ते जास्त |
| इंडेक्स फंड |
कमी |
Passive funds such as index funds and ETFs usually have lower TER because they replicate an index instead of actively selecting stocks.
Things TER Doesn't Tell You
A low TER is beneficial, but it does not give the complete picture of a mutual fund.
TER does not tell you:
- Whether the fund consistently outperforms its benchmark
- The experience of the fund manager
- Portfolio quality
- गुंतवणूक धोरण
- रिस्क लेव्हल
- पोर्टफोलिओ उलाढाल
- Future returns
Before investing, compare TER along with historical performance, risk measures, investment objective, and portfolio quality.
निष्कर्ष
Total Expense Ratio (TER) is one of the most important costs that a mutual fund investor faces, which is deducted on a daily basis from the NAV of the mutual fund scheme, thereby having an impact on its performance. The comparison of the TER along with the performance, risks, and objective of the mutual fund is necessary before taking any decisions. Comparing mutual funds becomes easy with the help of 5paisa.
