How expense ratio silently eats returns
Expense ratio is the annual fee the fund charges, expressed as a % of AUM. A 1% expense ratio on a 12% gross return means your net return is ~11%. Sounds small, but over 20-30 years it removes a significant chunk of your corpus.
Index funds typically charge 0.1-0.3%. Actively managed equity funds charge 1.5-2.5%. Over decades, low-cost funds almost always beat high-cost ones even before performance differences.
Expense ratio benchmarks (India)
| Fund type | Typical ER (direct) | Regular plan |
|---|---|---|
| Index fund / ETF | 0.1-0.4% | 0.5-0.8% |
| Large-cap equity | 0.8-1.5% | 1.8-2.2% |
| Mid/small-cap equity | 0.9-1.7% | 1.9-2.3% |
| Debt funds | 0.2-1.0% | 0.8-1.5% |
FAQ
Direct vs regular plan — what's the difference?
Regular plans pay commission to the distributor (0.5-1% extra per year). Direct plans have no commission — you get the full return. Over 20 years, direct plans typically deliver 20-30% more corpus.
Does this account for taxes?
No. Indian equity LTCG is 12.5% above ₹1.25 lakh/year. Debt LTCG is taxed at slab rates. Subtract from the net figure for a post-tax estimate.