You choose a mutual fund. The returns seem promising. The fund manager has a good track record. Then you see a line in the factsheet that says “expense ratio: 2.1%.” Does that matter? Certainly.
The expense ratio is the annual cost a mutual fund charges you to manage your money. It is deducted from the fund’s assets each day before calculating your NAV. You never pay for it by check. You never get a notice of deduction. But it eats away at your returns, year after year, silently.
Knowing what a good expense ratio is in a mutual fund gives you a real advantage when you are comparing funds. Let’s take this apart.
What Is an Expense Ratio in a Mutual Fund?
The expense ratio, or the Total Expense Ratio (TER), is the percentage of the average daily assets of a fund that are used to operate the fund. These costs include the fund manager fee, administrative fees, registrar fees, custodian fees, audit fees, and marketing costs.
According to the Association of Mutual Funds in India (AMFI), TER directly impacts the NAV of a scheme. For the same portfolio performance, the lower the expense ratio, the higher the NAV. Or, to put it another way, you don’t get the same returns from a fund with a 0.5% expense ratio as you do from a fund with a 2.0% expense ratio investing in the same basket of stocks. The cheaper fund is more of your money working for you.
SEBI mandates all mutual funds to disclose their TER every day on their website and on the AMFI website. So the data is always available to the public.
How the Expense Ratio Affects Your Returns
This is why even a small number counts for a lot over time.
Consider you invested Rs 10 lakh in an equity fund that offers a gross annual return of 12%. With a 2.0% expense ratio, your net return will fall to about 10.0%. If the expense ratio is 0.5%, you get around 11.5%. That 1.5% gap seems small. That’s several lakhs’ difference on your final corpus, over 20 years, just because of fees.
The answer is compounding. Lower fees mean more of your money stays invested. Invested money grows on its own more. Every year the investment is made, the gap between a high-cost and a low-cost fund grows r.
SEBI’s revamp of mutual fund regulations in December 2025, enshrined as SEBI (Mutual Funds) Regulations 2026, explicitly recognized this by reconfiguring the expense structure. The regulator has redefined TER as Base Expense Ratio (BER), segregating statutory levies such as GST, stamp duty, and Securities Transaction Tax. This means investors can more easily see what the fund house is charging and what is going to the government.
SEBI’s Expense Ratio Limits by Fund Category
SEBI has capped the maximum BER that fund houses can charge, and these vary by category and by the fund’s total assets under management (AUM). Bigger funds will likely pass economies of scale on to investors in the form of lower fees.
SEBI’s current list of what’s allowed and what you’ll pay is a handy reference:
Open-ended Index Funds and ETFs Under the 2026 rules, SEBI has lowered the cap for index funds and ETFs to 0.9%. In practice, well-run index funds cost a lot less. Direct plans of Nifty 50 index funds across the market charge anywhere between 0.04% and 0.20%, with the best funds at the lower end of that range.
Equity Funds – Actively Managed The regulatory cap for equity funds is as low as 1.05% for some schemes and as high as 2.25% for smaller schemes. In the real world, a competitive-cap and flexi-cap fund’s direct plan fees are generally in the 0.50%–0.80% range. Mid-cap and small-cap funds, on the other hand, have a slightly higher average expense, in the range of 0.65% to 0.80%, because of the greater cost of research.
Debt Funds: Debt fund expense ratios are lower than equity fund expense ratios. For debt-oriented open-end schemes, the SEBI limit is 0.25 percentage points lower than the equity cap for each AUM slab. Most liquid and short-duration debt funds in direct plans are charging below 0.25%, and many well-managed ones are charging below 0.15%.
Closed-Ended Equity Schemes Under the 2026 regulations, SEBI has reduced the cap for closed-ended equity schemes to 1.0% from 1.25% earlier.
What Counts as a Good Expense Ratio in a Mutual Fund?
Next steps: Set a realistic benchmark for each type of fund you own.
Index funds and ETFs under 0.25% are good. Great is less than 0.15%. If you find an index fund with a fee of over 0.5%, that is high for the category, and you should compare alternatives before investing.
For actively managed cap equity funds, under 0.80% in a direct plan is a reasonable goal. These funds are in a well-researched space, and costs have come down sharply. Anything over 1.5% in a direct plan is worth looking at.
For Actively Managed Mid-Cap & Small-Cap Funds: For a direct plan, anything up to 1.0% is fine, considering the extra research and transaction cost involved. The direct plans above 1.5% are on the higher side.
For liquid funds and debt, the direct plan standard is less than 0.30%. Debt funds return modest amounts, so fees take a bigger bite proportionally. A liquid fund with a direct plan charging 0.40% or more deserves a second look.
A note on regular and direct plans: Regular plans have a built-in expense ratio that includes a distributor commission. This adds around 0.5% to 1.0% per annum to the direct plans for the same fund. Data from RupayWise, based on a March 2026 analysis of 500+ schemes, shows that the difference alone can be Rs 8 to 14 lakh on a Rs 10,000 monthly SIP over a 20-year investment horizon. Both plan types cater to different sets of investors. Regular plans include the services of a distributor and provide continuous support, while direct plans are for investors who can make independent decisions.
Direct Plan vs Regular Plan: The Fee Gap Explained
When you buy a mutual fund through an AMFI-registered distributor, you are generally bought into the regular plan. The normal plan has a distribution commission within the expense ratio. That commission pays the distributor for the advisory support, paperwork, and monitoring of the portfolio that many investors require hand-holding for, especially in volatile markets.
26% of the regular plan SIP assets being managed by the distributors were active for 5 or more years as compared to 14% of the direct plan SIP assets in 2023, as per AMFI data. This suggests that the long-run results are also a function of investor behaviour, not just of the fee.
When you review expense ratios, make sure to compare the same plan type. Direct plan is 0.7%, and the regular plan is 1.6%. Different conversations
Know More : Direct Plan vs Regular Plan
Why the Expense Ratio Matters More for Some Funds Than Others
A good way to think about this is: In the case of actively managed equity funds, the stock-picking decisions of the fund manager are far more important than the fee differential between two competing funds. So a fund with a 1.2% expense ratio is a better deal if it beats its benchmark by 3% than a fund with a 0.7% expense ratio that just matches the index. Look at risk-adjusted returns, not just the fee.
Index funds are the other side of the coin. All Nifty 50 Index Funds have the same stocks in the same proportion. The only real difference is the expense ratio and the tracking error, which is a measure of how closely the fund tracks the index. This is one of the few cases where a lower fee actually results in a better outcome for the investor.
Fees matter a lot more for debt funds because the gross returns are narrower. A liquid fund that pays 7% gross will pay a lot less if it costs 0.40% rather than 0.15%. The absolute rupee difference is less than that in equity, but proportionate to the total return on offer, it is r.
As part of the fund selection process, the Snazzy Wealth team regularly reviews expense ratios, especially debt and passive strategies, where the fee differential has a direct and predictable impact on net returns.
How to Find the Expense Ratio of Any Mutual Fund
It takes about 60 seconds to find this number.
- Step 1: Visit the AMFI website, All fund houses are required to update their TER on this platform daily.
- Step 2: Visit the fund house’s own website and download the scheme’s factsheet. The expense ratio is one of the first things you’ll see on every factsheet, right next to the fund’s AUM, portfolio details, and performance data.
- Step 3: Use any mutual fund screener or financial data site. You can then filter funds by category and sort by expense ratio to see how your fund matches up against its peers.
“Run this check on any new fund you invest in. You should also review it annually, as expense ratios can change with the increase in AUM of a fund or the fund house changing the fee structure.
Putting It All Together
There is no one fixed number for a good expense ratio in a mutual fund. It depends on the type of fund, whether you are in a direct or regular plan, and whether the fund is actively or passively managed.
Here’s your quick reference:
- Nifty 50/broad index fund, direct plan: Good below 0.25%.
- -cap active fund, direct plan, Good under 0.80%
- Mid-cap active fund, direct plan: Good < 1%
- Liquid or debt fund (direct plan) Good under 0.30%
Always compare funds in the same category and the same plan type. Don’t use an index fund’s fee versus the fee of an actively managed fund as a direct measure of value.
If you are building a portfolio and want to ensure that the fees you pay are in line with the services and performance you get, Snazzy Wealth can help you review your current fund selection across all categories as an AMFI-registered mutual fund distributor.
Disclaimer: Mutual fund investments are subject to market risks. Please read all scheme-related documents carefully before investing. Past performance is no guarantee of future results. Expense ratios are subject to change and should be verified from the AMFI website or the fund house’s fact sheet before investing. This article is intended for educational purposes only and should not be taken as investment advice. Please seek advice from a qualified financial advisor before making any investment decisions. Snazzy Wealth Pvt. Ltd. is a registered mutual fund distributor with AMFI (ARN-259333).
Frequently Asked Questions (FAQs)
Q1. What is a good expense ratio in a mutual fund for Indian investors?
Depends on the type of fund. For direct plan Nifty 50 index funds, below 0.25% is good. A fair benchmark for direct plans of actively managed cap equity funds is less than 0.80%. Direct Plan is standard under 0.30% for liquid and debt funds. Always compare in the same category and plan type.
Q2. Does a lower expense ratio always mean a better mutual fund?
Not always. All index funds hold the same stocks, so the lower the fee, the better the net return to you. For an actively managed equity fund, a fund that consistently beats its benchmark may be worth a slightly higher fee. Look at the expense ratio and the fund’s track record before you make a choice.
Q3. How does the expense ratio affect a mutual fund’s NAV?
The expense ratio is deducted from a fund’s daily assets prior to the calculation of the NAV. A higher expense ratio means that the NAV grows more slowly than it would with a lower fee, all else equal with respect to the underlying portfolio performance. AMFI and SEBI require the TER to be published on fund websites daily for complete transparency.
Q4. What is the difference between TER and BER after SEBI’s 2026 regulations?
The total expense ratio has been restructured under SEBI (Mutual Funds) Regulations 2026. The Base Expense Ratio (BER) now includes the core fund’s fund-management costs and statutory charges, such as GST, stamp duty, and securities transaction tax, which are charged separately at actuals. This separation allows for comparison of the costs of managing the fund across schemes.
Q5. Should I choose a direct plan or a regular plan to get a lower expense ratio?
Direct plans have a lower expense ratio, as they do not pay distributor commissions. Regular plans are costlier, but they include continuous advisory support from an AMFI-registered distributor. This is beneficial for investors who need help in selecting funds, reviewing their portfolios, and staying invested during volatile market conditions. How much comfort you have with doing your own investing determines the better choice.
