Total Expense Ratio (TER) in Mutual Funds: Meaning, Calculation and Costs

The Total Expense Ratio, or TER, is the annualised percentage of a mutual fund scheme’s net assets charged towards its permitted expenses. These costs affect the scheme’s Net Asset Value, or NAV, and the return left for investors.

You do not usually receive a separate bill for TER. The expenses are accounted for within the scheme, so its published NAV already reflects them. This makes TER useful for comparing costs, provided you compare the right schemes and plans.

What is TER in mutual funds?

TER stands for Total Expense Ratio. It brings together the permitted costs charged to a scheme, including its base expenses and the additional cost categories recognised under mutual fund regulations.

The percentage is annualised. A TER of 1% therefore does not mean that 1% is deducted every day or each time you invest.

For perspective, a constant 1% annual expense rate on a constant value of ₹1 lakh would represent approximately ₹1,000 over a year. Actual expenses depend on the changing value of the scheme’s assets, the applicable rate and the period for which you remain invested.

The figures shown are for illustrative purpose only

Difference between base expense ratio and TER

The base expense ratio, or BER, is one part of TER. Understanding the distinction helps you read expense disclosures and notices without comparing unlike figures.

Under the current SEBI framework:

TER = BER + Brokerage cost + Transaction cost for executing trades + Statutory levies, including GST

The components must be expressed on a consistent basis when added together.

If you receive a notice referring to “base TER” or BER, check whether the figure excludes the other components. A base-expense figure should not be compared directly with another scheme’s total TER.

Source: SEBI, Master Circular for Mutual Funds, Chapter 11 and Format 7E, 20 March 2026.

How is TER charged?

Scheme expenses are accrued and reflected in NAV. Your units are not cancelled to collect the expense ratio, and the annual percentage is not taken as a separate upfront deduction from every investment.

The cost is linked to the assets held during your investment period. It does not remain a fixed rupee amount based only on your original investment.

A daily expense illustration

Assume an annual expense rate of 1% and an investment value of ₹1 lakh that remains unchanged for this illustration.

Approximate daily cost = ₹1,00,000 x 1% / 365

Approximate daily cost = ₹2.74

This is an estimate of the cost represented by the rate, not a separate debit from your bank account. The actual daily amount can change with asset values and the applicable expense rate.

The figures shown are for illustrative purpose only

Should you subtract TER from the return shown in a factsheet?

No. Published NAV-based returns already reflect the expenses accounted for by the scheme. Subtracting TER again would count those expenses twice.

For example, if a factsheet reports an 8% NAV-based return, you should not reduce it to 7% merely because the disclosed TER is 1%. A return stated before expenses would be a different measure.

Source: AMFI, Expense ratio.

How to calculate total expense ratio

For a simplified full-year calculation, divide the eligible expenses charged to the scheme during the year by its average daily net assets over the same period.

TER (%) = Eligible annual scheme expenses / Average daily net assets x 100

Using an average is more meaningful than using only the closing asset value, because the scheme’s assets change throughout the year.

The expenses in the numerator should match the measure being calculated. Using only base expenses gives a base-expense calculation, not the complete TER.

TER calculation example

Suppose a scheme has:

• Eligible annual expenses: ₹6 crore.
• Average daily net assets: ₹600 crore.

The calculation is:

TER = ₹6 crore / ₹600 crore x 100 = 1%

This is an annual illustration. The rate disclosed for a particular date is annualised and may differ from the average rate over a completed year.

The figures shown are for illustrative purpose only

Estimating what TER means in rupees

For a rough annual estimate, multiply your assumed average investment value by the annual TER.

These figures assume the stated average investment value and expense rate. An SIP adds money at different times, so applying a full year’s TER to the total annual contributions would overstate the holding period for later instalments.

The figures shown are for illustrative purpose only

Which expenses contribute to TER?

A scheme can bear permitted expenses associated with managing and operating it. These should not be confused with every expense incurred by the fund house as a business.

Common components include:

• Investment management and advisory fees: Fees for managing the scheme’s investments.
• Registrar and transfer agent services: Maintaining investor records and processing scheme transactions.
• Custodian fees: Safekeeping and servicing the scheme’s investment assets.
• Trustee and audit fees: Oversight and audit-related expenses permitted under the regulations.
• Investor communication: Permitted costs of statements, disclosures and scheme-related communication.
• Distribution expenses: Applicable distribution commissions and related expenses in regular plans.
• Trading-related costs and levies: Brokerage, specified transaction costs and statutory levies under the applicable framework.

An AMC cannot automatically pass all its office, infrastructure or general corporate expenses to a scheme. Only permitted expenses may be charged, subject to the relevant rules and limits.

Sources: SEBI, Mutual Funds Regulations, 2026, Regulation 66, amended through 7 July 2026; Master Circular for Mutual Funds, Chapter 11, 20 March 2026.

SEBI expense ratio limits for mutual funds

SEBI sets limits on the base expense ratio according to the scheme category and, where applicable, its daily net assets. These are regulatory ceilings, not the rates every scheme must charge.

The figures below reflect the SEBI (Mutual Funds) Regulations, 2026. Permitted brokerage, transaction costs and statutory levies are treated separately when arriving at TER.

Slab-based limits for applicable open-ended schemes

For open-ended schemes covered by the slab-based framework, different rates apply to successive portions of daily net assets.

The slabs apply progressively. A scheme entering a higher asset band does not apply that band’s rate to its entire asset base.

Category-specific limits

Certain schemes have separate base-expense ceilings rather than the slab structure above.

The fund-of-funds ceilings include the weighted expenses of underlying schemes, as prescribed. Additional restrictions apply to the expenses charged by the fund of funds itself.

Source: SEBI, Mutual Funds Regulations, 2026, Regulations 66–67, amended through 7 July 2026.

Why TER matters for mutual fund returns

Expenses leave less money invested than there would be without those costs. Over time, this also affects the amount available to compound.

The effect is easiest to understand when the assumed investment performance is identical and only the cost differs.

A long-term cost illustration

Assume a lumpsum investment of ₹1 lakh, a constant 10% annual return before expenses, and annual expense rates of 1% and 1.5%.

For this simplified annual model, the assumed net growth rates are 9% and 8.5%. The model excludes tax and exit load and does not reproduce actual daily fund accounting.

The figures use Investment x (1 + assumed net annual growth rate)ⁿ.

After ten years, the difference is approximately ₹10,638 under these assumptions. Actual returns and expense rates fluctuate, and two different schemes need not earn the same return before expenses.

The figures shown are for illustrative purpose only

Direct versus regular plan expense ratios

Direct and regular plans of the same scheme share a common portfolio and fund manager. Their expenses differ because the regular plan includes distribution costs.

This does not mean direct plans avoid the portfolio’s trading costs. Distribution commission and brokerage incurred when a scheme trades are different costs.

A direct plan may suit someone who can select and manage investments independently or uses separately paid advice. A regular plan provides access through a distributor. The relevant comparison is the cost and service arrangement, while recognising that both plans retain the scheme’s investment risk.

Source: AMFI, Direct plan.

Active versus passive fund expense ratios

Actively managed funds use investment research and portfolio decisions to pursue their stated objectives. Passive funds, such as index funds, aim to track a specified benchmark.

Passive funds generally have lower expense ratios, but cost comparisons should still consider what each scheme is designed to do.

For two funds tracking the same index, examine TER and tracking difference, which is the gap between the fund’s return and its benchmark return. The lowest TER does not automatically establish that a fund has tracked its index most closely.

Is exit load included in TER?

No. TER and exit load serve different purposes and apply differently.

A low TER does not mean that every redemption is free of exit load. Any separately agreed advice or platform fee should also be considered when reviewing your own investment costs.

Source: SEBI, Mutual Funds Regulations, 2026, Regulation 67, amended through 7 July 2026.

How to compare TER across mutual funds

TER is most useful when the schemes being compared address a similar investment need. Comparing unrelated fund categories can make a lower-cost scheme appear preferable without considering differences in risk or strategy.

Use these checks together:

• Compare similar categories: Match schemes with broadly comparable objectives and investment approaches.
• Match the plan: Compare direct with direct or regular with regular, unless you are specifically assessing the cost of distribution.
• Match the expense measure: Compare total TER with total TER, rather than one scheme’s BER with another’s TER.
• Check the date: Use disclosures covering the same date or comparable periods.
• Review net performance and risk: Consider results after expenses alongside portfolio concentration, volatility and consistency.
• Look beyond the percentage: A lower TER does not make an unsuitable investment suitable or prevent market losses.

There is no single “good TER” that applies to every mutual fund category.

How to check a mutual fund’s expense ratio

Use the scheme’s current disclosure rather than relying only on an older factsheet or a number shown without a date.

1. Open the AMC’s expense-ratio disclosure page or AMFI’s TER disclosure page.
2. Select the correct scheme and its direct or regular plan.
3. Check the effective date.
4. Identify whether the figure is BER, a separate cost component or total TER.
5. Review any recent expense-change notice.

For Bajaj AMC schemes, visit Statutory disclosures and select TER.

Scheme documents explain the expense framework, while the latest date-wise disclosure helps you identify the applicable rate.

Why does a mutual fund’s TER change?

TER can change because of revisions to base expenses, changes in scheme assets, trading-related costs or applicable levies. A larger asset base can spread some costs across more assets, but it does not guarantee that the disclosed TER will fall.

Under SEBI’s master circular, changes in BER generally require notice by email or SMS at least three working days before they take effect, along with a website notice.

There are exceptions: changes due to AUM movements and decreases arising from other regulatory requirements do not require prior notice under that provision.

If you receive a notice, check the old rate, new rate, effective date and whether the change concerns BER or total TER. An increase is a reason to review costs, not evidence by itself that the scheme has become unsuitable.

Source: SEBI, Master Circular for Mutual Funds, section 11.4, 20 March 2026.

FAQs

Is TER charged when a mutual fund makes a loss?

Yes. Permitted scheme expenses continue to be accounted for even when the portfolio loses value. TER is not a fee charged only when the scheme earns a positive return.

Is TER charged separately on every SIP instalment?

No. TER is reflected in the scheme’s NAV while your money remains invested. It is not a separate annual charge deducted upfront from each SIP instalment.

Does a lower NAV mean a lower expense ratio?

No. NAV is the value per unit, while TER measures expenses relative to net assets. A lower NAV does not establish that a scheme is cheaper to own.

Does a higher TER mean better fund management?

No. A higher TER shows a higher expense rate, not necessarily better investment decisions. Assess the scheme’s strategy, portfolio, risk and performance after expenses.

Can TER change after I invest?

Yes. The expense rate is not fixed for your entire holding period. It can change within the applicable regulatory framework, so check current disclosures and relevant notices.

Do I need to pay TER separately when redeeming my units?

No. Expenses have already been reflected in the NAV during your holding period. Redemption may involve a separate exit load where applicable, but TER is not collected again as an additional redemption bill.