Expense ratio: what it is, and why returns after it are what count
Aeterna Wealth · figures from our fund data, updated 12 Nov 2026
The expense ratio (TER) is a fund's yearly running charge, as a percentage of what you hold. It is taken out of the fund's NAV every day, so you never see a bill, and every return the fund reports, including every figure on our site, is already after it. That is why a fund is best judged on its returns after costs: a fund with a higher expense ratio that has beaten its index by more has done more for its investors.
What it includes
- The fund house's management fee, and the costs of running the scheme (registrar, custodian, audit).
- In Regular plans, the distributor's commission. That is the whole gap between Regular and Direct.
- GST on the management fee. Brokerage on the fund's own trades is added within limits.
Why returns after costs matter more
A fund manager who beats the index by 6% a year after a 1% expense ratio has delivered 6% more than the index, in your hands. Looking at the expense ratio on its own would miss that. Judge funds on what they deliver after costs, over many periods, and on how they behave in falls.
The limits
SEBI caps the expense ratio by the scheme's size: smaller equity funds may charge up to about 2.25% a year, the largest about 1%, plus taxes.
How to use it
- Look at returns against the index after costs, over rolling periods: that already accounts for the expense ratio.
- Check consistency and behaviour in falls; they say more about a fund than its charge.
- Your statement shows the plan you hold; a Regular plan includes a distributor's service, paid out of its expense ratio.
Common questions
Is the expense ratio deducted from my investment?
Not as a separate charge. It is taken from the fund's assets daily, so the NAV is always after costs.
Does the expense ratio change?
Yes. Fund houses can change it within SEBI's limits and must disclose it; it usually falls as a fund grows.
What is a good expense ratio?
On its own it says little: what matters is what the fund delivers after it. A fund's returns, and our ratings, are already net of its expenses.
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General information, not investment or tax advice for your situation. Mutual fund investments are subject to market risks; read all scheme-related documents carefully. Past performance does not guarantee future returns.
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