Dhirendra Kumar explains what expense ratio is and how does it work
22-Dec-2017 •Research Desk
What are the various charges involved in mutual funds? Are there any hidden charges?
Mutual funds are relatively clear in terms of charges. There are no hidden charges as such. When you invest in a mutual fund, there is a single all inclusive expense ratio which includes the management fee, sales expenses, operating expenses, registrar fee, custodian fee and other expenses. This expense ratio varies for a regular plan and a direct plan of the same mutual fund scheme.
For an equity fund, the expense ratio is generally around 2.50-2.65 per cent. For a direct plan of the same scheme, it would be less by 50-75 basis points. The expense ratio is substantially low for debt funds.
Then there is an exit load. It is charged if you redeem your investment in an equity fund before 1 year. This time period can vary for different funds. Debt funds may have exit load for investment period of less than 1 month, 3 months or so. Liquid funds usually don't have an exit load. But exit load gets back in the mutual fund. It is not an earning of the mutual fund company. It actually benefits other investors of the fund.