Expense Ratio

Expense Ratio or Total Expense Ratio (TER) is the annual fee or charge that a mutual fund charges to the scheme and in turn, to its investors. It includes charges like management fee, administrative cost, trading/brokerage and other operating expenses, audit fee, legal fee, sales & marketing expenses etc. It is expressed as a factor of the fund’s net assets on a daily basis.

Calculation:
Expense Ratio = Total Fund Expenses/AUM of the Fund x 100

What should investors know about expense ratio?

Things to keep in mind with respect to Expense Ratio:
1. The Net Asset Value (NAV) of a scheme is calculated daily after deducting the total expenses. A higher expense ratio would mean lower Net Asset Value
2. Direct plans have a low expense ratio because there is no intermediary involved and thus there are no distributor, advisor or agent fees
3. An active fund will have a higher expense ratio as compared to a passive fund
4. Expense ratio can bring a substantial difference to the size of corpus an investor can create over a longer time frame