What you pay for
The fee covers the fund manager and research team, the registrar and custodian, audit, and, in a regular plan, the commission paid to the distributor. You never get an invoice. The percentage is charged on the scheme's daily assets and taken out of NAV a little each day, so your units stay the same but each unit is worth slightly less than it would have been.
The 2026 structure: BER + brokerage + levies
SEBI's new Mutual Funds Regulations took effect on 1 April 2026 and changed how the total expense ratio (TER) is built. TER is now shown as three parts:
- Base expense ratio (BER): the running cost of the scheme. This is the number capped by slab.
- Brokerage: capped separately for trades (6 basis points on cash-market trades and 2 basis points on derivatives, excluding statutory levies).
- Statutory levies: STT, GST, stamp duty, exchange and SEBI fees, charged at actuals.
The BER caps reported for the new regime include 2.10% for the first ₹500 crore of an equity-oriented open-ended scheme, 1.85% for other open-ended schemes, and 0.90% for index funds and ETFs, with the cap stepping down as the scheme grows. A further amendment was published in July 2026, so always read the TER on the scheme's own page rather than relying on a general cap. The TER you see is what has been charged, not a ceiling.
Why a small percentage is a big deal
Fees compound against you. Take a ₹10,000 monthly SIP for 20 years where the gross portfolio return is 12% a year:
| Expense ratio | Net return | Value after 20 years |
|---|---|---|
| 0.5% | 11.5% | ₹86.60 lakh |
| 1.5% | 10.5% | ₹76.83 lakh |
One percentage point of cost takes about ₹9.8 lakh out of a ₹24 lakh investment. That does not mean the cheaper fund is always better (the manager of the cheaper fund still has to deliver the gross return), but it does mean cost is one of the few things you can check in advance.
Direct vs regular plan
The same scheme has two expense ratios. The regular plan's TER includes distributor commission; the direct plan's does not. For equity funds the gap is often in the range of half a percentage point to one point. See direct vs regular.
How to use it
- Compare the TER of the same plan type (direct with direct, regular with regular) within the same category.
- Compare passive and active separately: an index fund is expected to be cheap; an active fund must earn its extra cost.
- Check TER over time. A rising TER is a flag.
- Do not choose a fund on TER alone; look at the benchmark-relative record, portfolio and risk.
Questions people ask
What is expense ratio in mutual funds?
The yearly percentage fee a scheme charges, deducted from NAV.
What is a good expense ratio?
It depends on the category. Index funds are the cheapest; active small-cap funds usually cost more. Compare within the category.
Is expense ratio charged separately?
No. It is built into the NAV.
What is TER?
Total Expense Ratio: the BER plus permitted brokerage and statutory levies.
Is expense ratio the same as exit load?
No. Expense ratio is a continuing yearly cost; [exit load](/learn/glossary/exit-load) is a one-time charge when you leave early.
Keep going
Run the numbers
SIP calculator
Related terms
How we can help
Sources
- SEBI (Mutual Funds) Regulations, 2026 (effective 1 April 2026) and Master Circular
- amendment dated 7 July 2026
- calculations on the standard SIP method.
Mutual Fund investments are subject to market risks. Read all scheme related documents carefully. This page is general education, not personal advice. Back to the full glossary