The short answer
An expense ratio is the annual operating cost of a mutual fund scheme, expressed as a percentage of its assets. It is reflected in the scheme's NAV rather than billed separately to you, so the returns shown by the fund are normally after these expenses.
What is the expense ratio in a mutual fund?
The expense ratio is the annual operating cost of a mutual fund scheme, expressed as a percentage of the scheme’s assets. You do not usually receive a separate bill because these expenses are reflected in the net asset value, or NAV.
The Association of Mutual Funds in India, or AMFI, explains in its expense-ratio guidance, accessed 11 September 2026, that the cost can include permitted management, administration, registrar, custody, audit and other operating expenses. Current limits and terminology are governed by the SEBI Mutual Fund Regulations, 2026, last amended 7 July 2026.
The percentage is annual, but the cost affects the scheme over time. It is not a one-time charge for starting an SIP.
How is the expense ratio deducted from your mutual fund?
The expense ratio is accounted for through the scheme’s assets and NAV, not normally taken from your bank account as a separate recurring payment. The NAV you see already reflects the applicable expenses accrued by the scheme.
AMFI states that daily NAV is disclosed after deducting expenses. A May 2026 Scheme Information Document filed with SEBI also states that expenses are charged on daily net assets under the 2026 framework.
This is why your transaction history may show the full investment amount, subject to applicable transaction levies, without a monthly line called “expense ratio.” The cost still matters because it reduces the assets that support the NAV.
What does a 1% expense ratio cost in rupees?
A 1% annual expense ratio would equal roughly ₹1,000 over a year on an average investment value of ₹1,00,000. The actual effect will differ because the investment value, expense ratio and number of days invested can change.
| Illustration | Amount |
|---|---|
| Assumed average value during the year | ₹1,00,000 |
| Assumed annual expense ratio | 1% |
| Approximate annual cost reflected in NAV | ₹1,000 |
This is a simplified illustration, not a scheme quote. It assumes a constant average value and ignores market changes, tax, exit load and other applicable levies.
For an SIP, every instalment is invested for a different number of days. Multiplying the final balance by the annual percentage will not reproduce the exact cost that affected the portfolio.
Are the returns shown by a mutual fund before or after expenses?
Returns calculated from published NAVs are normally after the scheme’s applicable expenses. You should not subtract the expense ratio again from an NAV-based return shown by the AMC or a platform.
Suppose a scheme’s underlying portfolio grows before costs. The published NAV reflects the value left after applicable scheme expenses have been accounted for. Your return is then calculated from the NAV at purchase and the current or redemption NAV.
Platform screens can display returns in different ways, such as absolute return, compound annual growth rate or XIRR. Those methods change how the return is measured, but they still begin with values based on the scheme’s NAV.
Is a lower expense ratio always better?
A lower expense ratio creates less cost drag when every other factor is equal. It cannot tell you whether the scheme’s objective, portfolio, risk or time horizon fits your needs.
Compare costs within a sensible peer group. A debt fund, index fund and actively managed equity fund can perform different jobs and carry different risks. Choosing the lowest percentage across unrelated categories would not be a meaningful comparison.
Roz Invest’s same-job cost check asks one question first: are the schemes or plans being compared designed to do the same job? Only then does the expense difference become a clean comparison.
Why do direct and regular plans have different expense ratios?
Direct and regular plans of the same scheme generally hold the same underlying portfolio but have different cost structures. A regular plan may include a small share from the expense ratio already built into the fund, while a direct plan does not include that distribution component.
The NAVs and returns of the two plans can therefore diverge over time. This does not mean their fund managers bought different securities merely because the plan name differs.
The guide to Direct versus Regular mutual funds explains the service and decision differences. Do not choose between the plans using the expense ratio alone if you have not decided how the investment will be selected and monitored.
Can the expense ratio change after you invest?
Yes, the applicable expense ratio can change within the scheme’s documents and regulatory limits. Check the current disclosure because the percentage shown in an old article or screenshot may no longer apply.
AMFI says mutual funds must disclose scheme expense ratios daily on their own websites and the AMFI website. The current Scheme Information Document and AMC disclosures explain the permitted structure and where updates appear.
A changed ratio affects future NAV calculations. It is different from an exit load, which may apply when units are redeemed under a scheme’s stated conditions.
What should a beginner check before comparing expense ratios?
Check the exact scheme, plan and date of the expense disclosure before comparing percentages. Similar names can hide a different plan or option.
Use this sequence:
- Confirm the scheme and category.
- Confirm whether the plan is Direct or Regular.
- Check the current expense disclosure on the AMC or AMFI website.
- Read the scheme objective and current Riskometer.
- Compare with meaningfully similar alternatives.
- Keep exit load, tax and platform charges separate.
The guide to how exit load works for each SIP instalment explains why an exit load is not part of the ongoing expense ratio. For personalised scheme selection, consult a SEBI-registered investment adviser.
The practical rule is simple: the expense ratio is already reflected in NAV, lower cost helps when the comparison is otherwise like for like, and the percentage should never replace a suitability check.
Frequently asked questions
What is the expense ratio in a mutual fund?
The expense ratio is the annual operating cost of a mutual fund scheme expressed as a percentage of its assets. It covers permitted costs of running and managing the scheme and is reflected in NAV.
Is the expense ratio deducted from my investment amount?
The ongoing expense ratio is normally not shown as a separate debit from your account. Scheme expenses accrue against the fund's assets and are reflected in the NAV declared to investors.
Are mutual fund returns shown after the expense ratio?
Yes. The NAV is calculated after accounting for applicable scheme expenses, so returns calculated from published NAVs are already after those expenses.
Is a lower expense ratio always better?
A lower expense ratio leaves less cost drag, but it does not by itself make a scheme suitable. Compare the scheme's objective, portfolio, risk, benchmark and plan as well.
Can a mutual fund expense ratio change?
Yes. The applicable ratio can change within regulatory and scheme limits. Mutual funds must disclose current expense ratios, so check the AMC or AMFI disclosure rather than relying on an old screenshot.
Why do direct and regular plans have different expense ratios?
Direct and regular plans hold the same scheme portfolio but have different cost structures. A regular plan may include a small share from the expense ratio already built into the fund.
Sources
- Expense Ratio — Association of Mutual Funds in India
- Securities and Exchange Board of India (Mutual Funds) Regulations, 2026 — Securities and Exchange Board of India
- Nippon India Active Momentum Fund Scheme Information Document — Securities and Exchange Board of India
- Net Asset Value — Association of Mutual Funds in India