Cost is the one factor in investing you can know in advance with certainty. Returns are unknown. Costs are published.
Total Expense Ratio
The TER is the annual percentage charged by the fund for managing your money — fund management fees, distribution commissions, registrar and custodian costs, audit, and marketing.
It is not billed to you separately. It is accrued daily and deducted from the fund's assets. The NAV you see is already net of it.
Fund with a 1.6% TER. You hold ₹5,00,000.
Annual cost = ₹8,000, taken out in small daily slices, invisible in any statement.
The fund's investments might have returned 12%. Your NAV shows roughly 10.4%.
The new framework from 1 April 2026
SEBI has restructured how these costs are presented and capped. The change matters because it affects both the numbers you see and what is inside them.
TER is now split into two parts:
Base Expense Ratio (BER) — the costs the AMC controls: investment management fees, distributor commissions, registrar and transfer agent fees, custodian charges, trustee and audit expenses, investor communication and marketing.
External charges — brokerage, exchange and regulatory fees, and statutory levies such as GST, STT, CTT and stamp duty. These sit outside the BER.
The practical effects:
- Caps came down. For equity schemes with AUM below ₹500 crore the limit moved from 2.25% to 2.10%; for debt schemes in that band from 2.00% to 1.85%. Most larger AUM slabs fell by around 10 basis points, some by up to 15.
- Statutory levies no longer sit inside the AMC's expense structure, so a future change in GST or a transaction tax does not quietly consume the AMC's fee budget or yours in the same way.
- Brokerage caps were tightened. Under the 2026 framework, brokerage charged outside the Base Expense Ratio is capped at 6 basis points of trade value for cash-market transactions (down from 12) and 2 basis points for derivatives (down from 5). Brokerage above these limits must fall within the permitted BER limit or be borne as prescribed under the regulations, and bundled research costs can no longer be charged to schemes.
Expense ratio limits are slab-based on the scheme's size: the larger a fund grows, the lower its maximum permitted TER. Passive funds — index funds and ETFs — sit under much lower caps than active funds, which is the structural reason their costs are a fraction of the size.
Direct vs regular plans: the single biggest lever
Every scheme has two plans, holding the identical portfolio, managed by the identical manager.
Regular plan — you invested through a distributor, and the distributor's trail commission is paid out of the expense ratio.
Direct plan — you invested directly with the AMC or through a platform that does not take commission. No commission is paid, so the expense ratio is lower.
The gap is typically meaningful — often in the region of half a percentage point to one percentage point a year for active equity funds.
₹15,000 invested monthly for 25 years. Assume the underlying investments return 12% before costs.
At a 0.8% direct plan cost, you end with roughly ₹2.29 crore.
At a 1.7% regular plan cost, you end with roughly ₹1.97 crore.
A difference of about ₹32 lakh — from 0.9% a year, on identical holdings.
(Illustrative arithmetic only. Actual returns are unknown and will differ.)
Look for the word "Direct" in the scheme name on your statement. If it is absent, it is a regular plan.
Exit load
A charge for redeeming within a defined period, deducted from your redemption proceeds and retained by the scheme.
Typical shapes:
- Equity funds: commonly around 1% if redeemed within 365 days, nil after
- Liquid funds: a small graded load in the first few days
- Overnight funds: usually none
- Debt funds: varies widely by category
Exit load is stated in the scheme document and on every fund page. Check it before redeeming — a few days of patience sometimes saves the charge entirely.
Stamp duty
A small stamp duty applies on mutual fund purchases, including each SIP instalment and each STP transfer. It is tiny — a fraction of a basis point on each purchase — and deducted automatically. Worth knowing exists; not worth planning around.
What costs mean over time
Two funds. Same category, same holdings, same manager quality. One charges 0.5%, the other 1.8%.
Over one year the difference is 1.3% — barely noticeable next to market movement.
Over thirty years, compounded, that 1.3% consumes a substantial share of the final corpus.
This is why cost is worth attention that beginners usually give to picking last year's best performer instead. Performance is uncertain and does not persist reliably. Cost is certain and persists absolutely.
Key takeaways
- TER is accrued daily and already reflected in NAV — you never see it as a separate charge.
- From 1 April 2026 TER is split into a Base Expense Ratio plus external statutory and brokerage charges, with lower caps.
- Direct and regular plans hold identical portfolios; the regular plan's extra cost is distributor commission.
- Exit load typically applies to equity funds redeemed within a year, and a switch counts as a redemption.
- Cost is the one variable you can know in advance, and it compounds against you for decades.
Check your understanding
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