Expense Ratio Calculator

Ever ask yourself what the small hidden expense is that your mutual fund charges you each year? Our expense ratio calculator is free and gives you the exact expense amount in rupees on your investment and how it will impact on your wealth over time. Just type the number of the amount and the fund's expense ratio, and you'll have the answer in no time at all. No sign up, no spreadsheet, and it works on cell phone and desktop.

What Is a Mutual Fund Expense Ratio?

The mutual fund ratio is the annual expense that the fund house imposes on your investment scheme, as a percentage of the amount invested. It covers the expenses of the fund manager, research, administration, audits and, sometimes, distributor commissions.

You don't get billed for it. The daily reduction from the NAV of the fund makes it easy to miss this fee. It still costs you money each year, in both bull and bear markets. This number can be referred to as the total expense ratio (TER) in fund factsheets.

What Does the Expense Ratio Cover?

• The fees that are charged for fund management and advice.Management fees and advisory fees.

• The costs of registering, holding and auditing the records.

• Marketing and distribution expenses

• Expenses related to day to day operation and administration costs.

Expense Ratio Formula Used in the Calculator

The calculator will calculate using a standard, simple formula:

Annual Fee = Investment x Expense Ratio / 100

• Investment is the principal (₹) invested in the fund.

• Expense Ratio (%) is the annual expense of the fund.

The tool can also display the impact of these yearly fees on your corpus with the addition of tenure and expected return.

Worked Example

If you invest a sum of ₹5,00,000 in a fund having an expense ratio of 1.5%, suppose the amount of your investment that is charged to the fund is:

₹5,00,000 × 1.5 ÷ 100 = ₹7,500 per year

This may seem small, but it's compounding. Use the average gross return of 12% over 20 years (this is just an example and is not a forecast):

This cost of the loss of 1 percentage point of fees is approximately ₹7.3 lakh per annum. This can be repeated in the calculator above and other numbers can be tested.

How to Use the Expense Ratio Calculator

• Enter how much you want to invest in the amount field in Rs.

• Enter the fund's expense ratio (in percentage). It can be found on the AMC website or fund factsheet.

• Include tenure and expected return (optional) to view the long-term effects.

• Read your result. You can change any value to compare the funds side by side.

We created this tool at thetopstockbroker to allow you to view any fund's fee in just seconds, and without having to do the maths calculations yourself. Until you invest, run it on each fund on your short list.

Why the Expense Ratio Matters More Than You Think

This small number is forceful when it has three things:

• It is assessed yearly, irrespective of performance. The fee is applied for every year, whether your fund is down or not.

• It compounds. The fees paid are the fees paid and can't be invested year after year to grow.

• When returns are comparable it matters the most. For instance, in an index fund, the majority of funds are based on the same benchmark, so there will be little difference in costs.

This seems to be felt by long term investors like SIP investors who plan to invest for 15-20 years.

Direct vs Regular Plan Expense Ratio

There are two types of mutual funds. There is a commission that is paid to a distributor, since it is a regular plan, this increases the expense ratio. A direct plan is purchased from the fund house directly, therefore will not have any commission and will have a lower expense ratio.

The difference can seem small – less than 1% – but in decades it can be lakhs. Enter both ratios into your calculator, and do the comparison yourself.

What Is a Good Expense Ratio in India?

The number is not necessarily “right” as it will vary based on the fund. As a general guide:

• The ratios tend to be the lowest with index funds and ETFs, as they merely follow a benchmark.

• Actively managed funds cost more because they pay their fund managers and for research.

• SEBI imposes maximum cap on expense ratio of a scheme depending on the category and size of the scheme.

Make comparisons between funds within the same category. A large cap fund and a small cap fund don't compare as equals when it comes to cost.

Tips Before You Choose a Fund

• Be careful of cost as a sole criteria. One that has a steady yield and proper risk management may outperform an inexpensive, but lackluster fund.

• Examine the ratio periodically. AMCs can tweak it and a fund that may have been affordable last year, might not be this year.

• Take in the big picture. Take into account your exit time, size of the fund, proven performance and investment time frame.

• Consider results to be estimates. Assumptions used in the calculations of a calculator are not always true, and the real markets do not run in straight lines.

Start Investing Smarter

It is important to compare your funds before investing as a small cost of expense ratio can cost you lakhs over the years. Opt for direct plans with low cost, and begin a regular SIP and allow the compounding to do the rest. Opening a Demat account is free and will take only a few minutes.