Definition of Expense Ratio
The expense ratio is the annual fee a mutual fund charges to manage your money, expressed as a percentage of your total investment (AUM). It covers fund management costs, distributor commissions, administrative expenses, and SEBI levies.
For example, if a fund has an expense ratio of 1.5%, you pay ₹1,500 per year for every ₹1 lakh invested — regardless of whether the fund makes or loses money. SEBI has capped expense ratios: equity funds can charge up to 2.25% (regular) and 1.05% (direct).
Direct plans have lower expense ratios than regular plans because there is no distributor commission. Over 20 years, the difference of 1% in expense ratio can cost you lakhs in returns. Use InvestKit's Expense Ratio Calculator to see exactly how much fees are eating into your wealth.