Expense Ratio
The annual fee a mutual fund charges to manage your money, expressed as a percentage of your investment.
If a fund has a 1% expense ratio and you have ₹1,00,000 invested, you pay about ₹1,000 a year — deducted automatically from the fund, so you never see a separate bill.
A small difference in expense ratio compounds into a large difference over decades, because the money taken in fees can never grow for you again. This is why low-cost index funds and direct plans are so often highlighted.
Key points
- Charged every year as a percentage of your holding.
- Deducted from the fund, not billed separately.
- Index funds and direct plans typically have lower expense ratios.
Related terms
The per-unit value of a mutual fund, calculated as the total value of its holdings minus expenses, divided by the number of units outstanding.
Index FundA mutual fund that simply tracks a market index, such as the Nifty 50, rather than trying to beat it.
Systematic Investment Plan (SIP)A way of investing a fixed amount in a mutual fund at regular intervals — usually monthly — instead of all at once.
Exchange-Traded Fund (ETF)A fund that holds a basket of securities, usually tracking an index, whose units trade on a stock exchange like a share.