The expense ratio is what a mutual fund charges each year to run your money, as a percentage of the fund's assets. You never receive a bill for it. It is taken out of the fund every day, so the NAV and the returns you see in your app are already net of it.
That makes it easy to ignore, and expensive to ignore. A difference of one percentage point a year can cost a long-term investor a sixth of the final value of an investment, as the example below shows.
The rules changed on 1 April 2026. Under SEBI's Mutual Funds Regulations, 2026, the cap now applies to a base expense ratio, and taxes and trading costs are charged on top at actual cost. Here is what that means for you.
What is the expense ratio of a mutual fund?
The total expense ratio (TER) is a fund's yearly expenses as a percentage of its average daily net assets. It covers the fund house's management fee, the distributor's commission in regular plans, and the running costs of the scheme: the registrar, custodian, auditor, trustees and so on.
The rate is quoted per year, but it accrues every day. If a fund's TER is 1% and you hold ₹1 lakh in it for a year, roughly ₹1,000 goes towards expenses, deducted a little each day before the NAV is published.
What the TER includes since April 2026
SEBI now defines the total expense ratio as four parts:
TER = base expense ratio + brokerage + transaction costs + statutory levies (including GST)
| Part | What it covers | Limit |
|---|---|---|
| Base expense ratio (BER) | Management and advisory fee, distributor commission (regular plans), registrar, custodian, audit, marketing and other running costs | SEBI's slab limits, below |
| Brokerage | Paid to brokers when the fund buys or sells securities | 0.06% of trade value in the cash market and 0.02% in derivatives, before levies; anything above counts against the BER |
| Transaction costs | Fees of stock exchanges, clearing corporations and regulators on trades | Charged at actual cost |
| Statutory levies | GST, securities transaction tax, stamp duty and other government levies | Charged at actual cost |
The practical point: a fund's base expense ratio is the part the fund house controls and SEBI caps. The other three parts depend on how much the fund trades and on tax rates, so the total can sit above the base limit.
SEBI's base expense ratio limits
The limits fall as a scheme grows, slab by slab, on its daily net assets. For open-ended actively managed schemes:
| Daily net assets of the scheme | Equity-oriented schemes | Other schemes (debt, hybrid and others) |
|---|---|---|
| First ₹500 crore | 2.10% | 1.85% |
| Next ₹250 crore | 1.90% | 1.65% |
| Next ₹1,250 crore | 1.60% | 1.40% |
| Next ₹3,000 crore | 1.50% | 1.25% |
| Next ₹5,000 crore | 1.40% | 1.15% |
| Next ₹40,000 crore | Down 0.05 percentage points for every ₹5,000 crore | Down 0.05 percentage points for every ₹5,000 crore |
| Above ₹50,000 crore | 0.95% | 0.70% |
Other limits on the base expense ratio:
- Index funds and ETFs: 0.90%.
- Close-ended schemes: 1.00% for equity-oriented schemes, 0.80% for others.
- Fund of funds: 0.90% for those investing in liquid funds, index funds or ETFs; 2.10% for those with at least 65% in equity-oriented schemes; 1.85% for others. These limits include the expense ratios of the underlying funds.
"Equity-oriented" here means a scheme that keeps at least 65% in equity and equity-related instruments, other than index funds and ETFs.
These are maximums. Many large funds charge well below them, and direct plans always charge less than regular plans of the same scheme.
What changed from the old limits
- Lower caps, but taxes now sit outside them. The old cap for the first ₹500 crore of an equity scheme was 2.25%, and it had to absorb most statutory charges (GST on the management fee was already allowed on top). The new 2.10% excludes all statutory levies, which are now charged at actual cost.
- Lower brokerage caps. Brokerage was capped at 0.12% of trade value in the cash market and 0.05% in derivatives, including levies. The new caps are 0.06% and 0.02%, excluding levies.
- The exit-load extra is gone. Funds that charged an exit load could add up to 0.05% a year to expenses. SEBI removed this allowance.
- No B30 charge. The extra expense of up to 0.30% for money from beyond the top 30 cities had been suspended since March 2023 and was deleted from the regulations in October 2025. Distributors now get a one-time incentive for bringing in new investors from those cities, paid from the amount fund houses already set aside for investor education within the expense limits, not as an extra charge.
Direct vs regular plans: where the commission sits
Every scheme has a direct plan and a regular plan with the same portfolio and the same fund manager. The difference is cost.
- A regular plan's expense ratio includes the commission the fund house pays the distributor who sold you the fund.
- A direct plan pays no commission, so SEBI requires it to have a lower expense ratio. No expense head in the direct plan, including the management fee, can be higher than in the regular plan.
SEBI does not fix the size of the gap. It varies by scheme and fund house, so check the TER of both plans before you invest. Because the expense ratio comes out of returns every year, the gap compounds. For a full comparison, read direct vs regular mutual funds, and to see what a gap costs in rupees for your own amount, use the mutual fund commission calculator.
How much does the expense ratio cost you?
Take ₹10 lakh invested for 20 years in a portfolio that earns 12% a year before costs. The only difference between the two cases is the expense ratio.
| Expense ratio | Value after 10 years | Value after 20 years |
|---|---|---|
| 0.6% a year | ₹29.43 lakh | ₹86.64 lakh |
| 1.6% a year | ₹26.90 lakh | ₹72.34 lakh |
| Difference | ₹2.54 lakh | ₹14.30 lakh |
One percentage point a year leaves about 16.5% less money after 20 years. This is an illustration, not a forecast: real returns vary, and a higher-cost fund can still do better if its manager adds more than the extra cost. But cost is the one part of the return you know in advance.
How to check your fund's expense ratio
- The fund house's website. Every fund house must publish each scheme's TER every day, for the regular and the direct plan, with the base expense ratio, brokerage, transaction costs and statutory levies shown separately.
- AMFI's TER page. The AMFI total expense ratio page lets you filter by fund house, category and month.
- The factsheet and scheme documents. The monthly factsheet usually shows the current TER; the scheme information document shows the maximum the fund may charge.
- Your own holdings. Your consolidated account statement shows whether each of your funds is a direct or regular plan. See how to read your CAS, or link your funds to the free Genvest mutual fund portfolio analysis, which lists every holding in a regular plan.
When can a fund change its expense ratio?
A fund house can change a scheme's base expense ratio within SEBI's limits. Before it does, it must tell the plan's investors by email or SMS at least three working days in advance and update its website. No advance notice is needed when the change comes from a change in the fund's size, which moves it across SEBI's slabs, or when a regulatory requirement lowers it.
Changes are disclosed daily on the fund house's website, so if you hold a fund for years, check its TER now and then, especially in a regular plan.
Is a lower expense ratio always better?
Between two plans of the same scheme, yes: the direct plan holds the same portfolio for less. Between different funds, cost is one factor among several.
- Index funds and ETFs: the portfolio is set by the index, so cost and how closely the fund tracks its index matter most. A cheaper fund that tracks well is usually the better choice.
- Actively managed funds: compare expense ratios within the same category, alongside how consistently the fund has done against its category and benchmark. A fund that charges more needs to earn it back.
- Small or new funds: they can charge up to the highest slab, because all their assets fall in the first ₹500 crore. Their expense ratios usually come down as they grow.
Frequently Asked Questions
What is a good expense ratio for a mutual fund?
There is no single number. Compare funds in the same category and the same plan type. Index funds and ETFs have a base limit of 0.90%, and many charge far less; actively managed equity funds can charge up to 2.10% on their first ₹500 crore of assets, with lower limits as they grow.
Is the expense ratio charged every year?
It is an annual rate, but it is deducted from the fund's assets every day and is already reflected in the NAV. You do not pay it separately.
What is the base expense ratio (BER)?
Since 1 April 2026, SEBI's expense limits apply to the base expense ratio: the management fee, distributor commission and running costs of a scheme, excluding brokerage, transaction costs and statutory levies. The total expense ratio adds those costs on top.
Does the expense ratio include GST?
The base expense ratio does not. GST and other statutory levies are charged at actual cost and are included in the total expense ratio.
Why is the direct plan's expense ratio lower?
A direct plan pays no commission to a distributor, so SEBI requires its expense ratio to be lower than the regular plan's, and no expense head can be higher than in the regular plan.
Where can I see the expense ratio of my mutual fund?
On the fund house's website, which publishes every scheme's TER daily, on AMFI's total expense ratio page, and in the scheme's monthly factsheet.
Conclusion
The expense ratio is the cost you are sure to pay, whatever the market does. Since April 2026 the cap covers the base expense ratio, with taxes and trading costs on top, so look at the total expense ratio when you compare funds. Check which of your funds are in regular plans, compare the TER of the plans you hold, and let the cost difference be part of every fund decision.
Investments in securities market are subject to market risks. Read all related documents carefully before investing. Registration granted by SEBI, enlistment with IAASB and certification from NISM in no way guarantee performance of the intermediary or provide any assurance of returns to investors. The information in this article is for educational purposes and is not personalised investment advice. For personalised advice, use the Genvest app or consult a SEBI-registered Investment Adviser.