The expense ratio is the annual percentage of your invested value that the fund house charges for management, distribution and administration. It is deducted daily from NAV, so you never see a separate debit — and that is why it is easy to ignore. Direct vs regular plans Regular plans embed distributor commission and therefore carry a higher expense ratio, often 0.5-1.0 percentage points more on equity schemes. Over 20 years, that gap can consume a meaningful share of the final corpus. Direct plans hold the same portfolio. What is inside the ratio, and what is not Included: fund management fee, registrar and transfer costs, audit, marketing. Not included: securities transaction tax, brokerage on the fund's own trades, and exit load — those hit returns separately. Exit load Typically 1% if redeemed within 365 days on equity schemes; most index funds and liquid funds carry none or a graded structure over a few days. Load applies to the redeemed amount, not the gain. Reading the difference between two similar funds Compare tracking difference for index funds — it captures expense ratio plus cash drag plus rebalancing slippage in one number. For active funds, compare rolling returns net of expenses over full market cycles, not trailing one-year figures.
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