Expense Ratio
The annual cost of running a fund, expressed as a percentage of its assets and deducted from the NAV.
Formula
Expense Ratio = Total Annual Costs / Average Assets Under Management x 100
Unit
%
In depth
The expense ratio is charged daily against the NAV, so returns are always reported net of it and the cost is never invoiced separately — which is precisely why investors underestimate it. It is the most reliable predictor of relative fund performance available, because it is certain while returns are not. SEBI caps it on a sliding scale that falls as a scheme grows, and direct plans exclude distributor commission, making them materially cheaper than regular plans. Over a long horizon the compounding of a one-point difference is large enough to dominate most other decisions.
Worked example
₹10,00,000 growing at 12% gross for 20 years returns about ₹82.1 lakh at a 0.9% expense ratio and ₹69.8 lakh at 1.8%. The 0.9-point difference costs ₹12.3 lakh — more than the original investment.
Illustrative figures, chosen so the arithmetic is easy to follow. Not a live price and not a valuation of any company.
Educational reference only
This entry explains what “Expense Ratio” means. It is not investment advice and not a recommendation to buy or sell any security. Any numbers above are illustrative, not live prices, and nothing here predicts price direction or rates a stock. Consider your own circumstances and consult a SEBI-registered investment adviser before acting.