What is expense ratio in mutual fund? It can cost you lakhs

Summary: Expense ratio may look like a small fee, but over time, it can drain a surprising chunk of your mutual fund returns. Here’s why investors often overlook it, and why you shouldn’t. Aniket, 32, had been diligently investing in a flexi-cap fund for the last 10 years. With the fund clocking around 12 per cent annual returns, his portfolio had swelled nicely. One fine afternoon, he checked his portfolio and felt proud of the wealth he had built over time. Excited, he showed it to his friend Aman, expecting admiration. Instead, he got a rude shock. “I am impressed by your consistency,” Aman said, scrolling through the numbers. “But you’ve lost nearly Rs 1.7 lakh.” Aniket was taken aback. “What? How is that possible? The fund’s given me good returns!” The missing piece Aman explained that Aniket had chosen the fund’s regular plan, which carries a higher expense ratio. “What is an expense ratio?” Aniket asked, looking puzzled. Every mutual fund charges a fee for managing money. This fee, expressed as a percentage of the fund’s assets, is called the ‘expense ratio’. It covers the manager’s salary, administrative cos

This article was originally published on August 18, 2025.