Mutual fund expense ratio and direct vs regular plans

Q: The expense ratio (TER) is:

A yearly cost taken from the fund's assets. The TER is an ongoing yearly cost, deducted from the fund, not a one-time fee or tax.

Q: A lower expense ratio means:

More return stays with the investor. Cost is a direct drag on return, so lower cost leaves more for the investor.

Q: Compared with a regular plan, a direct plan has:

A lower expense ratio. Direct plans skip the distributor commission, so their expense ratio is lower.

Q: The expense ratio is capped by:

SEBI. SEBI sets the ceiling on the expense ratio, by fund type and size.

The costs, and direct vs regular

The expense ratio and what it eats

Costs are quiet, so people ignore them, but they compound against you just as returns compound for you. This is the lesson that pays for itself.

This lesson teaches a concept for the NISM Series V-A exam. It is education, not financial advice.

1
Every fund charges an expense ratio, or TER, a yearly cost taken from the fund's assets.
2
A lower expense ratio means more of the return stays with the investor, year after year.
3
SEBI caps the expense ratio, and the cap depends on the fund type and its size.
4
A direct plan has a lower expense ratio than a regular plan, because it carries no distributor commission.

Rupee example

On the exact same fund, a direct plan quietly returns a little more each year than a regular plan, purely from lower cost.

Practice

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Real exam format. Answer by voice, tap, or press 1 to 4. No negative marking, so always attempt.

Answer by voice

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The expense ratio (TER) is:

The TER is an ongoing yearly cost, deducted from the fund, not a one-time fee or tax.

Entry fees are banned; tax and NAV are separate.

A lower expense ratio means:

Cost is a direct drag on return, so lower cost leaves more for the investor.

It does not change risk, guarantee profit or add lock-in.

Compared with a regular plan, a direct plan has:

Direct plans skip the distributor commission, so their expense ratio is lower.

That cost gap is the whole point of direct plans.

The expense ratio is capped by:

SEBI sets the ceiling on the expense ratio, by fund type and size.

The AMC cannot exceed SEBI's cap; the RBI is not involved.

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NISM V-A syllabus

1What a mutual fund really is

2How a fund is built

3Who watches over it

4The offer document, decoded

5Getting funds to investors

6Selling the right way

8NAV, loads and the daily price

9Types of schemes, and picking one

10Return, risk and performance

11How gains are taxed

12Serving the investor

See the full roadmap →