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I want to know how the expense ratio is deducted from my SIP amount and will it continue to be deducted annually/monthly after I close my SIP? Also, which is a better option between Nifty 50 index and Nifty Next 50 index?
- Uttam
As long as your money is invested in a mutual fund, the expenses are deducted. This expense ratio is charged to manage your money and for other administrative & operating expenses of the fund. Also, expense ratio is different for direct and regular plans. In regular plans, it also includes the agent's/distributor's commission through which you purchased the scheme.
This expense ratio is reflected in the net asset value (NAV) of the fund on a daily basis. Since the amount looks very small on a day to day basis, it goes unnoticed. However, in the long run, it can make a big impact on the investment value if you go with a regular plan as compared to a direct plan.
Coming to your next question, Nifty 50 represents the top 50 companies of India by market-cap while Nifty Next 50 comprises those that are next to the top 50. From a long term investment perspective, I think Nifty Next 50 would give better returns. However, in the last one, one-and-a-half year, Nifty 50 has outperformed Next 50 mainly because of the outstanding performance of some four-five companies with a large weightage in the index. But for the long term, I feel Nifty Next 50 companies have more potential for growth.
This article was originally published on May 21, 2021.
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