What is an expense ratio?

It is the yearly fee a mutual fund charges to run your money: the fund manager, research, admin and, in a regular plan, the commission paid to whoever sold you the fund. It is written as a percentage, such as 1.5% a year.

You never see a bill. The fund takes a tiny slice (the yearly rate divided by 365) from its assets every day, before it publishes the NAV (the price of one unit). So the returns you see in the app are already after this fee, and most people never notice how much it adds up to.

Why a 1% difference becomes lakhs

The fee is charged on your whole balance, not just on what you put in, and it repeats every year. As your money grows, so does the fee, and the money taken out can no longer compound for you.

Example: a SIP of ₹10,000 a month for 15 years, at 12% a year before costs. You put in ₹18,00,000. With a 1.6% expense ratio (regular plan) it grows to about ₹41,54,122. The direct plan of the same fund, at 0.6%, reaches about ₹45,21,891. Same fund, same manager, same shares: the regular plan leaves you about ₹3,67,770 poorer.

Direct plan vs regular plan

	Direct plan	Regular plan
Where you buy it	The fund house’s website or app, MF Central, or a “direct” investing app	Through a distributor, agent, bank or broker
Commission inside the fee	None	Yes, paid to the seller every year
Expense ratio	Lower	Usually 0.5 to 1.5 percentage points higher
Portfolio and fund manager	Exactly the same
Who suits it	People who can pick funds themselves	People who want ongoing help from an adviser and value it

The plan name always says “Direct” or “Regular”, for example “XYZ Flexi Cap Fund, Direct Plan, Growth”. Check your account statement (CAS) to see which one you hold.

The limits SEBI sets (from 1 April 2026)

SEBI caps how much a fund can charge. From 1 April 2026 the cap is on the Base Expense Ratio (the fund’s own costs). Taxes and levies such as GST, STT and stamp duty are now shown separately on top, so the total you pay can be slightly higher than the base figure.

Type of fund	Maximum base expense ratio
Equity funds, first ₹500 crore of fund size	2.10%
Equity funds, largest funds (above about ₹50,000 crore)	falls step by step to 0.95%
Debt and other funds, first ₹500 crore	1.85%
Index funds and ETFs	0.90%

Bigger funds must charge less, which is why large, popular funds often have lower expense ratios.

How to check your fund’s expense ratio

1. Open the fund’s page on the fund house website, or in any investing app. Look for “Expense ratio” or “TER”.
2. Make sure you are looking at the right plan (Direct or Regular).
3. It can change every day, within SEBI’s limits. Funds must tell you before they raise it.
4. Compare it with similar funds. For an index fund, anything above about 0.5% is high.

Questions people ask

What is a good expense ratio for a mutual fund?

For direct plans: under about 1% for active equity funds, under 0.5% for index funds and ETFs, and under about 0.5% for most debt funds. Regular plans cost more because they include the seller’s commission.

Is the expense ratio charged once a year?

No. It is a yearly rate, but it is taken in tiny daily amounts from the fund’s assets before the NAV is published. You don’t pay it separately; it is already inside the returns you see.

How much does the regular plan really cost me?

In our example, a ₹10,000 monthly SIP for 15 years at 12% before costs grows to about ₹41,54,122 in a regular plan (1.6% fee) and about ₹45,21,891 in the direct plan (0.6%). The difference is about ₹3,67,770.

Can I switch from a regular plan to a direct plan?

Yes. You redeem units of the regular plan and buy the direct plan. This counts as a sale, so capital gains tax and any exit load may apply. Many people stop new SIPs in the regular plan and start them in the direct plan instead.

Does a low expense ratio mean a better fund?

Not on its own. Cost is one thing you can be sure of, but also look at what the fund invests in, its risk and how it has done against its benchmark over 5 years or more.