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Summary: A reader asks whether mutual fund expenses are charged once or annually on a lumpsum investment. The piece explains how the expense ratio is deducted daily from a fund's NAV, illustrated with a simple example.
In case of a lumpsum investment in any mutual fund, would I be charged for expenses only once or every year? – Neeraj Sharma
Neither once nor annually; you're charged every day. The expense ratio is the annual fee, expressed as a percentage of your investment, that mutual funds charge to cover operating costs like fund management and administration. But rather than billing you once a year, funds deduct the expense ratio daily from the net asset value (NAV).
Here's how it works. If the annual expense ratio is 1.5 per cent, roughly 0.0041 per cent (1.5 per cent ÷ 365) is shaved off the fund’s NAV each day. Thus, on an NAV of Rs 10, that's about Rs 0.0004 per unit.
Say you invest a lumpsum of Rs 1.2 lakh in this fund and receive 12,000 units. Your daily expense is then Rs 0.0004 x 12,000 units, or roughly Rs 4.8. This figure changes each day with the NAV, and the sum of these daily deductions over the year is your total annual expense.
In the case of SIPs, each instalment adds units to your holding, so your expenses rise correspondingly.
Also read: Active vs passive investing: Which is right for you?
This article was originally published on May 07, 2025, and last updated on July 02, 2026.
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