Expense ratio

The expense ratio is the annual cost of running a mutual fund scheme, shown as a percentage of its assets. It covers fund management, administration and distribution. You are never billed for it separately — it is deducted before the NAV (Net Asset Value) is published, so the returns you see are already net of it. A gap of even 0.5% a year compounds meaningfully over a long horizon. Regular plans carry a higher expense ratio than direct plans because they include distributor commission. SEBI caps the ratio by scheme type and size.