TER or total expense ratio indicates the total fee you pay for you for the services of the mutual fund (and if there is one, the distributor too!)

It typically includes the remuneration of the team that manages your investment (including the fund manager), marketing costs of the fund house, distributor charges among other expenses that are required for the well-functioning of a fund house.

TER is strongly regulated by SEBI – the regulator of India’s securities’ market.

TER is typically the highest for equity funds (think large cap funds, small cap funds, mid cap funds etc) and any discussion on TER more often than not is implicit in the form of ‘direct plans versus regular plans.’

The following represents SEBI’s ceilings on the maximum TER mutual fund houses can charge their investors for various schemes –

For every individual mutual fund scheme, there are two plans – direct and regular – which are completely identical except for the TER. The TER of the regular plan includes distributor charges (commission or brokerage) and hence is always higher than that of the direct plan.

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For DIY investors whose mutual fund basics are strong, who have been investing for quite some time and who don’t really require hand holding, can opt for direct plans because that will mean less expense and more net returns! For everyone else or even for veteran investors, you should seek help of advisors and distributors who can add value to your portfolio and seem worth the cost/fee. TER is generally published (and informed) and not a part of the NAV of the mutual fund schemes you are holding. Simply said, the TER is conveyed to you by the AMCs whenever it is changed and whatever portfolio you see on your dashboard that has already been accounted for TER – it not subject to any further fee.

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Other Mutual Fund Questions

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How are mutual funds (capital gains) taxed?