Chapter 9 of 12
Costs: expense ratio, exit load, direct and regular plans
7 min read
You never receive a bill for owning a mutual fund. The costs are taken out of the fund's NAV every day, so they are easy to overlook and expensive over time.
Expense ratio
The expense ratio is the annual percentage of the fund's assets charged to run it, covering management, administration and distribution. SEBI sets ceilings that fall as a fund grows. For open-ended equity funds with under ₹500 crore of assets the ceiling was cut from 2.25% to 2.10% from April 2026, and index funds and ETFs moved from 1.00% to 0.90%.
Why a small difference matters
- ₹10 lakh invested for 20 years at 12% gross grows to about ₹96.5 lakh.
- At a 1% annual cost it grows to about ₹80.6 lakh; at 0.5% to about ₹88.2 lakh.
- That half a percentage point is worth about ₹7.6 lakh over 20 years.
Exit load
Some funds charge a fee, often around 1%, if you redeem within a stated period, commonly a year. Check it before you invest, particularly if you may need the money soon.
Direct and regular plans
Every scheme has two versions. A direct plan is bought from the fund house without an intermediary and has a lower expense ratio. A regular plan is bought through a distributor, and part of the expense ratio pays for the distributor's service.
- Direct suits investors who are confident choosing funds, reviewing them and staying disciplined on their own.
- Regular suits investors who value help with selection, goals, rebalancing and staying calm in a downturn.
- The best choice is the one that keeps you invested through a full market cycle.
Key takeaways
- Costs come out of NAV, so they are easy to miss and costly over decades.
- Compare expense ratios within the same category.
- Direct is cheaper; regular includes advice. Choose deliberately.
This content is for education only and is not investment or tax advice. Mutual fund investments are subject to market risks; read all scheme-related documents carefully.