Expense Ratio: What You Actually Pay
Updated 26 Aug 2026
The Total Expense Ratio (TER) is the annual cost of running a scheme, expressed as a percentage of assets. It covers fund management fees, administration, registrar and transfer agent charges, marketing, and applicable taxes.
How it is charged
TER is not billed to you. It is accrued daily and deducted from the fund's assets before NAV is published. A fund with a 1.5% TER gives up roughly 1.5/365 of a percent each day, invisibly.
SEBI caps it on a sliding scale
SEBI limits TER by scheme type and size, with larger funds required to charge less as economies of scale kick in. Index funds and ETFs face far tighter caps than active equity funds, and direct plans must be cheaper than regular plans of the same scheme.
Why small differences matter
Cost is the most reliable predictor of relative fund performance available, because it is the one input known in advance. On a 20-year horizon, a percentage point of annual cost can consume a fifth or more of your final corpus.
Frequently asked questions
Is the expense ratio charged on top of my investment?
No — it is deducted from the fund's assets daily before NAV is declared. You never see a separate charge, which is exactly why it is easy to ignore. Every return figure you see is already net of it.
Do index funds have lower expense ratios?
Yes, substantially. Because there is no research team picking stocks, index funds and ETFs often charge a fraction of what active funds charge — a gap that compounds significantly over a decade.