What is Total Expense Ratio?
All costs for operating and managing a mutual fund scheme like investment management fees, custodian fees, registrar fees, audit fees, administrative expenses, selling & marketing expenses etc. are collective referred to as Total Expense Ratio (TER).
How is TER calculated?
TER is calculated as a percentage of the scheme's Assets Under Management (AUM). Daily NAV published for the scheme is after deducting TER of the scheme. TER charged should be within the prescribed limit under the SEBI (Mutual Funds) Regulations, 1996.
Total Expense Ratio = (Total expenses incurred / Total fund assets ) x 100
What is the TER limit?
TER limit as prescribed under the SEBI (Mutual Funds) Regulations is as follows-
Assets Under Management (AUM) | Maximum TER as a percentage of daily net assets | |
TER for Equity funds | TER for Debt funds | |
On the first Rs. 500 crores | 2.25% | 2.00% |
On the next Rs. 250 crores | 2.00% | 1.75% |
On the next Rs. 1,250 crores | 1.75% | 1.50% |
On the next Rs. 3,000 crores | 1.60% | 1.35% |
On the next Rs. 5,000 crores | 1.50% | 1.25% |
On the next Rs. 40,000 crores | Total expense ratio reduction of 0.05% | Total expense ratio reduction of 0.05% |
Above Rs. 50,000 crores | 1.05% | 0.80% |
In case of an Index fund scheme/ Exchange Traded Fund, the TER limit is 1%.
In case of a Fund of Fund scheme, the TER limit is two times the weighted average of the TER of the underlying schemes.
Is there any difference between the TER of a Direct and a Regular plan of the Mutual Fund scheme?
Yes, there is a difference between the TER of both the plans of the scheme. Regular plan's TER includes commission paid to the distributor by the scheme so its TER is on a higher side whereas in Direct Plan there is no distributor involved so TER of Direct plan is lower. Lower TER of Direct plan results in higher return for the investor.
All the schemes of Zerodha Fund House have only Direct plans.
What are the expenses included in TER of the scheme?
Some of the expenses included in TER of the scheme is as follows-
- Investment Management and Advisory Fees
- Trustee Fees and Expenses1
- Audit Fees and Expenses
- Custodian Fees and Expenses
- RTA Fees and Expenses
- Marketing and Selling Expenses
- Cost related to Investor Communication
- Cost of providing account statements
- Cost of Statutory Advertisements
- Cost towards investor education and awareness
- Brokerage and Transaction cost over and above 0.12% and 0.05% on value of trades for cash and derivative market trades only
- GST on expenses other than Investment Management and Advisory Fees
- GST on brokerage and transaction cost
Where can I see the TER of the scheme?
TER of the scheme is published daily on our website www.zerodhafundhouse.com and on AMFI's website www.amfiindia.com
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