Learn · Before you buy a fund
What a fund costs you
The yearly fee, what it costs in rupees, and the two plans every fund has.
3 min read
Every fund charges a yearly fee
A mutual fund takes a small share of your money each year to run the fund. This is the TER (total expense ratio). You never see a bill: it's taken out a little every day, and the NAV you see is already after the fee.
₹1,000 a year
What a 1% fee costs on ₹1 lakh
Every 0.1% is about ₹100 a year on ₹1 lakh. As your money grows, the fee in rupees grows with it.
Same fund, two plans
Most funds come in two plans. The Direct plan is the fund on its own. The Regular plan is the same fund, same manager, same holdings, with a slightly higher fee. The extra goes to the distributor who helped you buy it.
Example
What the difference adds up to
Say you put ₹1 lakh in a fund for 10 years. If it grows 11% a year after the Direct fee, you'd have about ₹2.84 lakh. With a Regular fee 0.9% higher, it grows about 10.1% a year and you'd have about ₹2.62 lakh, roughly ₹22,000 less. This is an illustration with assumed returns, not a forecast.
Myth
A higher fee means a better fund.
Fact
The fee pays for running the fund (and, on Regular plans, the distributor). It says nothing about future returns. Compare funds on what they hold, how they did over long periods, and how far they fell.
Words from this lesson
- Direct plan: A fund plan bought straight from the fund house. Same fund, lower fee, no distributor commission.
- Index fund: A fund that copies a market index like the Nifty 50.
- Regular plan: A fund plan bought through a distributor. Its fee includes the distributor's commission.
- TER (expense ratio): The yearly fee a fund takes out of your money, as a percentage. Shown before you invest.