Is it important to check the expense ratio of a mutual fund? How will it affect the returns?
Deepak Patel, Ahmedabad
The expense ratio indicates the sum you pay a fund in percentage term every year to manage your money. For instance, if you invest Rs 10,000 in a fund with an expense ratio of 1.5 per cent, then you are paying the fund Rs 150 to manage your money. In other words, if a fund earns 10 per cent and has a 1.5 per cent expense ratio, it would mean an 8.5 per cent return for an investor. Funds' NAVs are reported net of fees and expenses; therefore, it is necessary to know how much the fund is deducting.
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The expense ratio is a recurring expense and can change even after your sign up for a scheme. The SEBI stipulates the maximum expense ratios that schemes can charge. And, yes it is important to check the expense ratio that a fund charges when evaluating its performance or at the time of the fund selection.
