The higher the ratio, the higher the funds are being incurred in-order to manage the fund. How Important is the Expense Ratio?Įxpense-ratio indicates the per-unit cost of managing the funds which are calculated by dividing the total expenses by the total assets under management. Suppose the fund has earned a return of 15% on the investment and if 1% is the expense ratio, then you would earn a return of 14%. Of course, the return earned on the above investments by the fund house has to be more in order for you to not lose any money. To clarify the above further, 1% is basically the amount of the total assets that need to be paid out in order to manage the fund. The total expense ratio for this fund would be calculated as below : In order to manage the fund, the fund house charges management fee, administrative fee along with some other expenses amounting to Rs. Suppose there is a fund house that has an asset under management worth Rs. Lets’ understand the same with the help of an example : The expense ratio is calculated by dividing the total expenses incurred by the average value of the portfolio.Įxpense Ratio = Total expenses ÷ Average value of the portfolio
Alternatively, the expense ratio will be lower in case the fund has a higher asset under management. The expense ratio will be higher in a case where the asset under management of a fund is lower. These guys track the markets and the companies in the fund’s portfolio. manages the fund in order to generate better returns for the investors. A group of people, being fund managers, analysts, etc. In order to manage a fund, in-depth knowledge of the market is required. As per SEBI regulations, mutual funds are permitted to charge certain operating expenses for managing a fund.
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