Total Expense Ratio

Mutual Funds, under SEBI (Mutual Funds) Regulations, 1996, are permitted to charge certain operating expenses for managing a mutual fund scheme – such as sales & marketing / advertising expenses, administrative expenses, transaction costs, investment management fees, registrar fees, custodian fees, audit fees – as a percentage of the fund’s daily net assets referred to as ‘Total Expense Ratio’ (TER). The TER is calculated as a percentage of the Scheme’s average Net Asset Value (NAV). The daily NAV of a mutual fund is disclosed after deducting the expenses.

As per the SEBI Regulations, AMCs are required to disclose the TER of all schemes on a daily basis on their websites as well as AMFI’s website.

TER has a direct bearing on a scheme’s NAV – the lower the expense ratio of a scheme, the higher the NAV. Hence, TER is an important parameter while selecting a mutual fund scheme because in long term, it leads to a sizeable deduction in final corpus.

TER limits is decided as follows: