Mutual Fund Investment Tips: Before investing money in a mutual fund, usually an investor first sees how the fund has performed. But if you are thinking of investing in a mutual fund, then not only the performance of the fund so far, but also look at its Expense Ratio i.e. the cost of investment. In fact, the fund’s expense ratio determines whether investing in that scheme will make you cheap or expensive. The increase or decrease of the expense ratio also directly affects your returns.
Spend on managing your investment
The expense ratio that is incurred on the management of mutual funds is called the expense ratio. There are various expenses of fund houses to manage the fund. The fund house has a team of professionals who keep an eye on the market. It also includes expenses related to transfer and registrar. The expense ratio is an annual fee. It shows the cost incurred per unit. The expense ratio is an annual fee charged by the fund house. Therefore, look at the expense ratio at the time of investing in the fund.
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The actual return is determined by the expense ratio
It can be understood that you have chosen a mutual fund scheme for investment, whose expense ratio is 1.5 percent. At the same time, you have invested 1 lakh rupees in it. This means that for managing this fund, you will have to pay 1500 rupees annually. In the same way, if this fund gave a total return of 12 per cent, then you will get 10 per cent return actually.
On the other hand, if its expense ratio was 0.75 per cent, then you would have to pay an annual fee of Rs 752 for its management. At the same time, if the Igar Fund gave 12 percent return, then your actual return would be 11.25 percent. It is clear here that the higher the expense ratio, the more your expenses will increase.
(Note: However, it is to be noted here that the guarantee of returns is not guaranteed by more or less expense ratio. Sometimes funds with higher expense ratio give higher returns than funds with lower expense ratio.)
Better funds with lower expense ratio
Axis Focused 25 Fund: 0.65%
Axis Bluechip Fund: 0.46%
Canara Robeco Emerging Equities Fund: 0.87%
Axis Midcap Fund: 0.51%
Kotak Emerging Equity Fund: 0.55%
Kotak Smallcap Fund: 0.60%
PGIM India Midcap Opportunity Fund: 0.55%
Mirae Essent Lorgecap Fund: 0.54%
Mirae Assets Emerging Bluechip Fund: 0.92%
SBI Smallcap Fund: 0.93%
(source: Value Research)
How much can the expense ratio be
Recently, the market regulator SEBI has fixed the limit of expense ratio. Mutual fund schemes whose AUM is Rs 500 crore can charge a maximum of 2.25 per cent as the expense ratio. Similarly, the expense ratio can be 2 per cent for the AUM scheme of 500-750 crore rupees. The expense ratio can be 1.75 per cent for a fund of Rs 750–2000 crore, 1.6 per cent for a scheme with 2000–5000 crore AUM and 1.5 per cent for a fund with Rs 5000–10,000 crore AUM.
According to the SEBI directive, the expense ratio for the 10-50,000 crore AUM scheme will decrease by 0.05 per cent after every Rs 5000 crore increase. If the AUM of a mutual fund scheme is more than 50,000 crores, then AMC can charge 1.05 per cent as the expense ratio.