The total expense ratio (TER) is the yearly fee a mutual fund charges, shown as a percentage of the money you have in it. You never get a bill for it. The fund takes a small slice of its assets every day, so the NAV you see is already net of the fee. In September 2026 the median direct plan of an active equity fund charged about 0.9–1.1% a year, an equity index fund 0.45% and a liquid fund 0.13% (AMFI).
Since 1 April 2026 the number has two layers. SEBI now caps the base expense ratio (BER), which is what the fund house charges to run the scheme. Brokerage, exchange charges and taxes are added on top to make the TER. Below is how both work, what the fee costs over 20 years, and where to check any fund's figure.
How is the total expense ratio calculated and deducted?
TER is the scheme's total expenses divided by its average daily net assets, stated as a yearly rate. SEBI's 2026 regulations define it as the ratio of all expenses charged to investors to the scheme's assets, and set every limit "as per cent of the daily net assets".
In practice the fund accrues the fee daily. A fund with a 1% TER and a NAV of ₹100 deducts about ₹0.0027 per unit each day. On ₹1 lakh that is about ₹2.74 a day, or roughly ₹1,000 over a year if the value stays flat.
Two things follow from this. TER is charged on the total value of your holding, not on your profit, so a fund that falls 10% in a year still takes its full fee on what is left. And because the NAV is already after expenses, the returns a fund reports are net of TER. You don't need to subtract it again.
What a TER of 0.2%, 1.0% and 1.8% costs over 20 years
An illustrative example: ₹10 lakh invested once, a portfolio that earns 12% a year before costs, held for 20 years, with the fee taken daily from the NAV the way funds do it. With no cost at all, the money would grow to about ₹96.5 lakh.
| TER | Return after costs (a year) | Value after 20 years | Shortfall vs no cost |
|---|---|---|---|
| 0.2% | 11.8% | ₹92.7 lakh | ₹3.8 lakh |
| 1.0% | 10.9% | ₹79.0 lakh | ₹17.5 lakh |
| 1.8% | 10.0% | ₹67.3 lakh | ₹29.2 lakh |
The 1.8% fund ends about ₹25.4 lakh behind the 0.2% fund, roughly a quarter less money from the same portfolio. Going from 1.0% to 0.2% is worth about ₹13.7 lakh.
The fees themselves are smaller than the gap. At 1.8%, the amounts deducted add up to about ₹10.8 lakh over 20 years. The other ₹18 lakh or so of the shortfall is growth that money would have earned had it stayed invested. That is why a fee that looks small in year one (₹18,000 on ₹10 lakh at 1.8%) matters so much over a working life.
To run the numbers for your own SIP or lump sum, use the cost calculator. It compares an ETF, an index fund, an active fund and a regular plan side by side.
SEBI's base expense ratio: what changed in April 2026
SEBI replaced its 1996 mutual fund rules with the SEBI (Mutual Funds) Regulations, 2026, which came into force on 1 April 2026 after the SEBI board approved them on 17 December 2025. The expense limits now apply to the base expense ratio, and statutory levies are charged on top at actual cost.
Under regulation 67, the TER is the sum of four parts:
- Base expense ratio: the management fee, distributor commission (regular plans only), registrar, custodian, audit and trustee fees and the other running costs. This is the capped part.
- Brokerage: up to 0.06% of trade value on cash-market trades and 0.02% on derivatives, excluding levies. The old caps were 0.12% and 0.05%, including levies.
- Transaction costs: exchange, clearing and regulatory charges on each trade.
- Statutory levies: taxes set by the central and state governments, such as GST, securities transaction tax and stamp duty.
Before April 2026, brokerage and transaction costs were charged over and above the expense limit and did not show up in the TER that funds published. Now they do, so funds that trade a lot look far more expensive on paper. On 30 September 2026, Kotak Arbitrage Fund's direct plan had a base expense ratio of 0.33% but a TER of 2.32%, because 1.76 percentage points were levies on its constant buying and selling. Those trading costs always came out of the NAV; the new format just shows them. Our arbitrage fund comparison explains why the returns still hold up.
SEBI's limits on the base expense ratio
For open-ended active funds, the cap falls as the fund grows. Each rate applies only to that slice of the fund's assets.
| Slice of daily net assets | Equity-oriented funds | Other funds (debt, etc.) |
|---|---|---|
| First ₹500 crore | 2.10% | 1.85% |
| Next ₹250 crore | 1.90% | 1.65% |
| Next ₹1,250 crore | 1.60% | 1.40% |
| Next ₹3,000 crore | 1.50% | 1.25% |
| Next ₹5,000 crore | 1.40% | 1.15% |
| Next ₹40,000 crore | 0.05% lower for every ₹5,000 crore | 0.05% lower for every ₹5,000 crore |
| Above ₹50,000 crore | 0.95% | 0.70% |
The old caps on the same slices included levies, for example 2.25% on an equity fund's first ₹500 crore. Worked through the slabs, the highest base expense ratio an equity fund of ₹10,000 crore can charge is about 1.50% of its assets, falling to about 1.24% at ₹50,000 crore.
Flat caps apply to other schemes: 0.90% for index funds and ETFs (it was 1.00%), 1.00% for close-ended equity schemes and 0.80% for other close-ended schemes. Fund of funds are capped at 0.90%, 2.10% or 1.85%, depending on what they invest in. These are ceilings. Most large funds charge well below them.
Direct vs regular plans: same fund, different TER
SEBI requires every scheme to offer a direct plan with a lower expense ratio, because no distributor commission is paid from it. No fee head in the direct plan may be higher than in the regular plan. The commission sits inside the regular plan's base expense ratio, and GST on it adds to the levies.
In AMFI's September 2026 data, the median regular plan of an active equity fund cost 0.9–1.2 percentage points a year more than the direct plan of the same fund, depending on the category. That is a bigger gap than the one between the 1.0% and 1.8% rows in the table above, which was worth about ₹11.7 lakh on ₹10 lakh over 20 years. Our guide to direct vs regular mutual funds shows the rupee impact on a SIP and how to switch.
ETF vs index fund TER
An ETF has one plan and pays no distributor commission, so it is usually the cheapest way to own an index. On 30 September 2026, Nippon India ETF Nifty 50 BeES had a TER of 0.04%, while UTI Nifty 50 Index Fund's direct plan charged 0.25%. Across all equity products the median ETF charged 0.30% and the median direct-plan index fund 0.45%; both groups include sector and factor products that cost more than plain Nifty 50 trackers.
An ETF's TER is not its full cost, though. You also pay your broker's charges, a demat fee when you sell and the bid-ask spread on the exchange. For small monthly amounts those can cancel the ETF's edge. We compare the two in ETF vs index fund vs mutual fund, and the ETF vs index fund calculator adds brokerage to the comparison.
A quick ETF example: Gold BeES
Nippon India ETF Gold BeES had a TER of 0.81% on 30 September 2026: a base expense ratio of 0.69% plus 0.12% of levies. The median gold ETF charged 0.50%. Gold BeES costs more than most gold ETFs but is by far the most traded, an advantage that matters mainly for large orders. The Gold BeES review goes through that fee-versus-liquidity choice.
What is a good total expense ratio?
Lower is better when everything else is equal, because TER is the one part of your return you know in advance. But a "good" TER depends on the category. An arbitrage fund with a 1.5% TER is normal; an index fund at 1.5% is not.
| Category | Schemes | Median direct TER | Median direct BER | Median regular TER |
|---|---|---|---|---|
| Liquid | 43 | 0.13% | 0.11% | 0.25% |
| Equity ETF | 290 | 0.30% | 0.19% | One plan only |
| Equity index fund | 267 | 0.45% | 0.25% | 1.08% |
| Gold ETF | 25 | 0.50% | 0.42% | One plan only |
| Corporate bond | 21 | 0.34% | 0.28% | 0.68% |
| Arbitrage | 39 | 1.46% | 0.28% | 2.10% |
| Large cap | 35 | 1.06% | 0.71% | 2.20% |
| Flexi cap | 46 | 0.92% | 0.56% | 2.17% |
| Mid cap | 34 | 0.96% | 0.57% | 2.03% |
| Small cap | 36 | 0.91% | 0.54% | 2.06% |
| ELSS | 51 | 1.10% | 0.79% | 1.95% |
| Aggressive hybrid | 30 | 1.08% | 0.68% | 2.21% |
| Balanced advantage | 37 | 1.04% | 0.64% | 2.31% |
Source: AMFI's TER disclosure, each scheme's latest figure in September 2026 (30 September for almost all). Medians worked out by FinPlann. ETFs and index funds include sector, thematic and factor products.
A workable rule: a direct plan at or below its category median is reasonable, and one well above it needs a reason you can name. Use the base expense ratio to compare what fund houses charge, and the TER to see what actually comes off your returns. In funds that trade heavily, such as arbitrage funds, the gap between the two is mostly taxes and brokerage, not the fund house's fee.
Portfolio turnover ratio, and the trading costs TER still misses
The portfolio turnover ratio shows how much of the portfolio the manager replaced during the year. SEBI's formula is the lower of total purchases or total sales, divided by the average assets for the period. A ratio of 100% means the fund swapped roughly its whole portfolio once. Equity funds must print it in their monthly portfolio statement, and factsheets usually show it next to the TER.
Turnover drives trading costs. As an illustration, a fund with 100% turnover buys and sells about twice its assets in a year, so brokerage at the 0.06% cap could reach about 0.12% of assets before levies. Since April 2026 that brokerage, the exchange charges and the levies are all inside the TER.
What no ratio captures is the hidden cost of trading: the bid-ask spread and the way a large order moves the price of a thinly traded stock. Those show up only as slightly lower returns. They tend to matter most for small-cap and mid-cap funds with high turnover, so read the turnover ratio alongside the TER rather than the TER alone.
Where to find a fund's TER, and how changes are notified
- AMFI: the TER page lists every scheme's daily TER, split into base expense ratio, brokerage, transaction cost and levies, for direct and regular plans.
- The fund house's website: SEBI requires every AMC to publish scheme-wise, date-wise TER daily under a "Total Expense Ratio of Mutual Fund Schemes" section, as a downloadable spreadsheet.
- The monthly factsheet: usually shows the TER for both plans, along with the portfolio turnover ratio.
If a fund house changes a scheme's base expense ratio, it must tell investors by email or SMS at least three working days before the change takes effect, and post the notice on its website. These are the "notice of change in base TER" documents that turn up when you search the term. No advance notice is needed when the change happens only because the fund's assets moved into a different slab, or for a cut made to meet regulatory requirements.
The quickest check for any fund you hold: confirm it is a direct plan, compare its TER with the category median above, and run the gap through the cost calculator to see what it is worth in rupees.