What is Expense Ratio?
The expense ratio is the annual fee a mutual fund charges investors, expressed as a percentage of the fund's assets, to cover management, administrative, and distribution costs. It is deducted directly from the fund's returns before NAV is published.
SEBI caps expense ratios in India on a sliding scale by fund size and type — actively managed equity funds typically charge 1–2.25%, while index funds and ETFs charge as little as 0.1–0.5% since they require no active stock-picking.
A seemingly small difference compounds significantly over long horizons: on a 20-year, ₹10,000/month SIP, a 1% higher expense ratio can cost several lakh rupees in foregone returns.
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