Expense ratio (TER): the cost of owning a fund
The total expense ratio is the annual percentage of a fund's assets deducted to run it — a cost that compounds over time.
General investing education — not investment advice. These explainers describe concepts in plain language; they do not assess any fund, security, or person's situation. Investing involves risk, including possible loss of principal. For guidance on personal decisions, consult a SEBI-registered investment adviser.
Not investment advice.
What the TER is
The total expense ratio (TER) is the annual cost of running a mutual fund, expressed as a percentage of its assets. It covers fund management, administration, audit, and (in some plans) distribution. The TER is not billed separately — it is deducted from the fund's NAV a little every day, so published NAVs and returns are already net of it.
Regulated, disclosed, and capped
In India, SEBI caps how much TER a scheme may charge, with limits that vary by scheme type and size (larger funds face tighter caps; as of June 2026). Every scheme discloses its current TER, so the cost of owning it is public information rather than a hidden fee.
Regular and direct plans
Every open-ended scheme is offered in two plans that share the same portfolio and fund manager. The regular plan includes distributor commission inside its TER; the direct plan has no distributor commission and therefore a lower TER. The difference between the two is purely the cost layer — the underlying investments are identical.
Small percentages, large effects
Because the TER is charged every year on the whole balance, small differences compound. As a hypothetical illustration: ₹1,00,000 growing at an assumed 8% a year before costs becomes about ₹2.06 lakh in 10 years at a 0.5% TER, but about ₹1.79 lakh at a 2% TER — a gap of roughly ₹27,000 created by costs alone. This is a hypothetical illustration with assumed figures (authored June 2026), not a projection of any actual investment. Real returns vary and may be negative.
Related concepts: compounding.