Mutual Funds: If you are thinking of investing in a mutual fund, then not only the performance of the fund so far, but its expense ratio must be seen. Even if you are comparing the mutual fund between two schemes, in this condition also you should know about the expense ratio related to it only then you will be able to choose the right fund for you. In fact, the fund’s expense ratio determines whether investing in that scheme will make you cheaper or more expensive. Increasing or decreasing the expense ratio also directly affects your returns.
The expense ratio is the expenditure incurred on the management of mutual funds. To derive the expense ratio of a mutual fund, its total assets (asset under management i.e. AUM) is divided by the total expenditure. Many expenses of mutual fund houses (asset management company i.e. AMC) are included in the expense ratio. It can be said that the expense ratio is an annual fee. It shows the cost incurred per unit. Funds that give higher returns in less expenditure… ..
Axis Midcap Fund
Expense Ratio: 0.51%
5 Year Return: 21.56%
Value of 1 lakh investment in 5 years: Rs 2.65 lakh
Minimum investment: Rs 5000
Assets: 9757 crores (February 28, 2021)
Small Cap Fund Box
Expense Ratio: 0.60%
5 Year Return: 21%
Value of 1 lakh investment in 5 years: Rs 2.61 lakh
Minimum investment: Rs 5000
Assets: 3059 crores (February 28, 2021)
Axis Small Cap Fund
Expense Ratio: 0.38%
5 Year Return: 20.47%
Value of 1 Lakh Investment in 5 years: Rs 2.54 Lakh
Minimum investment: Rs 5000
Assets: 4165 crores (February 28, 2021)
PGIM India Midcap Opportunities Fund
Expense Ratio: 0.55%
5 Year Return: 20%
Value of 1 lakh investment in 5 years: Rs 2.48 lakh
Minimum investment: Rs 5000
Assets: 934 crores (February 28, 2021)
Axis Bluechip Fund
Expense Ratio: 0.50%
5 Year Return: 19%
Value of 1 lakh investment in 5 years: Rs 2.37 lakh
Minimum investment: Rs 5000
Assets: 23496 Crore (February 28, 2021)
Mirae Asset Large Cap Fund
Expense Ratio: 0.54%
5 Year Return: 18%
Value of 1 lakh investment in 5 years: Rs 2.32 lakh
Minimum investment: Rs 5000
Assets: 23353 crores (February 28, 2021)
(Source: Value Research)
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How will your returns be affected
The effect on returns can be understood with an example. The expense ratio of a mutual fund is 1.5 percent. You have invested 10 thousand rupees in it. This means that for managing this fund, you will have to pay 150 rupees annually. If this fund gave a total of 15 percent return, then you will get 13.5 percent return actually. But if the expense ratio was 0.50 percent, then you would have to pay a fee of 50 rupees annually for its management and the return would also have been 14.5 percent.
(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.)