Expense Ratio: The Fee Behind Your Mutual Fund Returns

Ratin Biswass / 24 Dec 2025 / Categories: DSIJ_Magazine_Web, DSIJMagazine_App, Letters to Editor, MF - Letter to Editor, Mutual Fund

Could you explain in simple terms what an expense ratio means in mutual fund investing?

Could you explain in simple terms what an expense ratio means in Mutual Fund investing? - Tejal Rathi[EasyDNNnews:PaidContentStart]

Editor Responds : An expense ratio is the annual fee you pay a mutual fund company for managing your investment. Every mutual fund company hires experts to research markets, pick stocks or bonds, maintain records and handle transactions. All these activities involve costs, and the expense ratio helps cover them. It is expressed as a percentage of your total investment. For example, if a fund has a 1 per cent expense ratio and you invest ₹1,00,000, you pay ₹1,000 a year towards fund expenses. You do not pay this amount separately as the fee is automatically deducted from the fund’s returns, which slightly reduces your overall gains.

Lower expense ratios generally mean better net returns over time, especially in passive and Index Funds. Recently, SEBI has reduced the maximum permissible expense ratios to help investors earn more and improve transparency.

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