Expense Ratio of Direct vs Regular Mutual Fund Schemes The expense ratio of FoFs is relatively higher than what an investor would incur by directly investing in the underlying mutual fund. In India, FoFs are typically mutual funds investing in overseas mutual funds, which in turn invest in foreign stocks (for instance, Franklin India Feeder Franklin US Opportunities Fund) or FoFs investing in gold ETFs (for instance Reliance Gold Savings Fund). An ETF is a passive instrument (not actively managed) and hence, tends to feature a significantly lower expense ratio as compared to mutual funds.įund of Funds (FoFs): A Fund-of-funds (FoF) is a mutual fund which invests in other mutual funds. In case of an ordinary mutual fund, you can directly buy units from the fund house, without going to a stock exchange. One must have a Demat and trading account to invest in it. An ETF is traded on stock exchanges just like stocks. This does not require a high level of active management of the fund and hence, the expense ratio of index funds tends to below.Įxchange-Traded Funds (ETFs): ETF is a type of fund which passively invests in stocks, bonds or commodities, usually tracking an Index like the Nifty 50 or the Nasdaq 100 (for instance, Motilal Oswal Nasdaq 100). It thus seeks to replicate the performance of an index. The fund invests in index stocks, in the weights in which they are present in the index. Index Fund: An Index Fund is a mutual fund which invests in a market index such as the Nifty 50 or the Sensex. However, AMCs are not allowed to charge the expense ratio instead of exit load for close-ended schemes.Įxpense Ratio of Index Funds, ETFs, and Fund of Funds (FoFs) This is done to widen the penetration of the mutual funds in tier 2 and tier 3 cities.įund houses are also allowed to charge 5 basis points (0.05%) of AUM over and above the maximum expense ratio limits instead of an exit fee, wherein exit load is levied or is applicable. However, SEBI allows fund houses an extra of 30 basis points (0.30%) in expense ratio over and above the mentioned maximum limits for selling in beyond top 30 cities, only if 30% or more of new inflows come from beyond the top 30 cities. Whereas, when the asset value of a fund is huge, the expense ratio is comparatively lower as the expenses get distributed across a wider asset base. When the value of a funds’ assets is small, the expense ratio is higher such that the management meets the fund expenses from a smaller asset base. TER for other schemes excluding Index Funds, ETFs and Fund of Funds (%)įor every increase of 5,000 crores in AUM TER reduces by 0.05%Įxpense Ratio is inversely related to the AUM of the fund. As per the capital market regulator, SEBI (Securities and Exchange Board of India), fund houses can charge Total Expense Ratio (TER), subject to the following maximum limits: Asset Under Management (crores)
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