With the annual 9% rise in the MF Industry, it is necessary for all investors to understand, evaluate & compare the expense ratios before choosing a Mutual fund as most of the mutual fund relationship managers don't give clarity of this cost concept.

Expenses ratio is the amount charged on the daily basis by the MF companies for managing an investor's portfolio. It is deducted before calculating the NAV(Net asset value) of your investment in form of Fund management fees, Advertisement & distribution Expenses, Legal & audit fees.

As per the SEBI Guidelines, Equity MFs can charge upto 2.5% Expense ratio on NAV&Debt MFs can charge upto 2.25% ER on NAV. Thus, before selecting an MF scheme, identify the Expense ratios.

Remember, if any MF company claims a 12%return annually on the amount invested then don't forget to deduct the expense ratio on 12%. It is calculated on regular basis:

Suppose, your expenses ratio is 1.5% then it is calculated as 1.5%/365 days = one-day expense ratio & the same gets compounded with years

For the very next time, you plan to invest in MFs don't forget to access your expense ratios as it can range in lakhs to crores when you go for long term investing.

credits
https://www.wallstreetmojo.com/
https://unovest.co/

knowledgebooster