A SMALL FEE TWEAK THAT COULD BOOST YOUR MF RETURNS

India’s mutual fund industry has transformed over the past decade, with assets soaring from ₹13 trillion to nearly ₹99 trillion and investor folios rising sixfold to more than 230 million, thanks to digital access and systematic investing. But costs haven't fallen with scale. Many equity funds still charge Total Expense Ratios close to regulatory limits, even as tech has lowered distribution costs—quietly eating into long-term investor returns. Understanding how TERs work shows why even a small reduction can meaningfully boost wealth over time.

- Rachana Baid, professor and dean (academics), National Institute of Securities Markets, and V Shunmugam, partner, MCQube.

What expense ratios really mean: A fund’s expense ratio is the share of assets deducted annually to cover management, operations, marketing, and distribution. A 2% TER means ₹2 is charged each year for every ₹100 invested. It may seem small, but compounding amplifies the impact. If two investors each put ₹1 lakh into similar large-cap funds—one paying 0.4% and the other 2.4%—the higher-fee investor ends the decade almost ₹43,000 poorer, despite identical 10% gross returns.

Expense ratios vary across categories: liquid and money-market funds are cheaper, while equity and thematic funds cost more due to deeper research and trading needs. Smalland mid-cap strategies also tend to carry higher costs for the same reason.