How Do Expense Ratio Affects Return In A Mutual Fund Scheme?

As is with other goods and services, financial products and services do entail a cost and mutual funds are no exception. Fund management fee, agent commission, selling and advertising expenses and registrar fees all fall under expense ratio head. The ratio also referred as annual recurring expense is decided every March and September.

How Do Expense Ratio Affects Return In A Mutual Fund Scheme?

Expense ratio is the percentage of the average weekly net assets of the mutual fund scheme that are used for running the mutual fund. In other words, it precisely details how much you pay on an annual basis in percentage terms for management of your funds in the scheme.

So, the mutual fund scheme with an expense ratio of 1.5% and offering a return of say 15% on an annual basis, would mean a net return of 13.5%. Net Asset value or NAV of a mutual fund is reported after deducting for fees and expenses on a daily basis, so it makes sense to know the amount deducted as expense.

Half yearly reports of asset management companies provide the value of expense ratio of a particular scheme. The monthly fact sheet of the scheme can also be checked upon to know the the current expense ratio for a mutual fund scheme. Sebi decides on the maximum amount which the fund can charge as expense ratio.

So, expense ratio is a recurring expense that is charged every year and the returns as well as the capital gains on the scheme is provided after adjusting for expenses and fees. Read here to know what are the different ways in which you can invest in mutual funds.

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