What are the fees you pay on your mutual funds? - fees on the fund is charged and NAV is after that

There are many different investment options available to help you reach your financial goals. Regardless of which investment you choose, it is important to understand the costs involved and how they can affect your investment. 

What are these charges??

When you go out to eat pizza, are you charged only for the ingredients that were used to make the pizza? Of course not. The bill you pay includes other  charges incurred by a restaurant including its rent, electricity, etc. as well as the chef’s expertise. Similarly, when you buy a mutual fund you do not just pay for the securities  that your fund buys and sells. 

The majority of these expenses are Investment and Advisory fees. Apart from this, there are some other fund management expenses like marketing and selling expenses including agents’ commission, brokerage and transaction cost, registrar fees, trustees fee, audit fee, custodian fees, costs related to investor communication, and more. The total expenses charged by a Mutual Fund are capped in what is called the Total Expense Ratio. 

Total Expense Ratio 

Currently, in India, the expense ratio is fungible, i.e., there is no limit on any particular type of allowed expense as long as the total expense ratio is within the prescribed limit. The regulatory limits of TER that can be incurred/charged to the fund by a Mutual Fund AMC have been specified under Regulation 52 of SEBI Mutual Fund Regulations.

Effective from April 1, 2020 the TER limit has been revised as follows.

Assets Under Management (AUM)Maximum TER as a percentage of daily net assets
TER for Equity fundsTER for Debt funds
On the first Rs. 500 crores2.25%2.00%
On the next Rs. 250 crores2.00%1.75%
On the next Rs. 1,250 crores1.75%1.50%
On the next Rs. 3,000 crores1.60%1.35%
On the next Rs. 5,000 crores1.50%1.25%
On the next Rs. 40,000 croresTotal expense ratio reduction of 0.05%for every increase of Rs.5,000 crores of daily net assets or part thereof.Total expense ratio reduction of 0.05%for every increase of Rs.5,000 crores of daily net assets or part thereof.
Above Rs. 50,000 crores1.05%0.80%

Source: https://www.amfiindia.com/investor-corner/knowledge-center/Expense-Ratio.html 

How are these charges levied to the investor? Where can I see this charge?

The expenses are deducted from the NAV of your Mutual Fund Scheme on a daily basis. The NAV that is listed every day is published only after deducting expenses of a mutual fund. For example, if your investment value today is Rs. 100,000 and expense ratio of your fund is 1% then today’s expense amount charged to your Fund  will be 100,000 X 1% / 365 i.e. Rs.2.73. The total value of your investments will be reduced to INR 99,997.27. 

Basically, you do not get a separate report of your charges in the account statement but it is deducted from your fund NAV. You can check the expense ratio as a % to know whether the fund you own has a high or low expense ratio compared to other funds. It is one of the factors to refer to but remember that it is not the only one.

Wealth Café advice:

Before investing in a fund, you should always check the expense ratio. If it’s possible, read the Scheme Information Document to see what all expenses have been charged for. Also, remember, a good fund is the one that delivers good performance with optimal expenses.


Check our course- NM 104: Basics of Mutual Funds - to learn more about Mutual Funds in detail.

Disclaimer: - The articles are for information purposes only. Information presented is general information that does not take into account your individual circumstances, financial situation, or needs, nor does it present a personalized recommendation to you. You must consult a financial advisor who understands your specific circumstances and situation before taking an investment decision.

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