The Hidden Impact of Total Expense Ratio on Your Mutual Fund SIP

When you invest in Mutual Funds, your goal is simple — to grow wealth over time. But what if you were losing lakhs without even realising it?

Most investors check past returns, ratings, or fund managers before Investing. But very few pay attention to the Total Expense Ratio (TER) — the annual fee charged by the fund house to manage your money. While 0.5% or 1% might seem like a small number, over time, this can snowball into a massive loss — especially for long-term SIP investors.

Let’s decode this through a real-life case that proves why low-cost investing isn’t just smart — it’s powerful.

What is Total Expense Ratio (TER)?

The Total Expense Ratio (TER) is the percentage of your fund’s total assets that goes towards covering fund management fees, marketing, administration, and other operational expenses.

In simple terms:

TER is the cost you pay for managing your money in a mutual fund.

• Direct plans have lower TERs (0.4%–0.9%)
• Regular plans have higher TERs (1%–2.5%) — since they include distributor commissions

Even a small difference in TER directly reduces your net return.

Case Study: Saving 0.8% TER = ₹3.5 Lakh Extra in 10 Years

Let’s say two investors — Ravi and Neha — both start an SIP of ₹10,000/month for 10 years in the same mutual fund, but in different plans.

Just a 0.8% lower TER gave Neha ₹3.5 lakh more — without investing anything extra.

That's the cost of not paying attention to expenses.

Disclaimer: The SIP examples and expense ratios used are for illustration only.

Why This Happens: The Power of Compounding Costs

Expenses in Mutual Funds are deducted daily, before your returns are credited. So the effect is compounded over years — silently eating into your corpus.

Even small differences make a huge long-term impact because:

• You pay expenses every year
• You lose the return on those expenses as well
• This loss compounds negatively over time

How TER Affects Your SIP: Real-World Comparison

Let’s compare three real mutual funds (names anonymised):

Direct vs Regular: Which One Is Better?

If you’re confident about choosing your funds, go for Direct plans. Over long-term SIPs, they can create massive additional wealth.

Where to Check TER Before You Invest?

Mutual fund factsheet (monthly update)

• AMC’s website under scheme details
• SEBI’s Mutual Fund Dashboard
• Online platforms that compare TER across plans

Look for the latest TER — and don’t forget to compare long-term averages for better judgement.

Pro Tip: TER is Just One Part of the Story

Yes, lower TER is better — but it’s not the only metric.

• A high-cost fund that consistently outperforms its benchmark may be worth it.
• A low-cost fund with poor returns is still a bad investment.

So evaluate TER alongside:

• Past performance
• Fund manager style
• Risk-adjusted returns
• Portfolio quality
• Turnover ratio

Final Thoughts

Investing is not just about growing your wealth — it’s about keeping your costs low so that more of your returns stay with you. This case proves that saving just 0.8% in expenses can result in ₹3.5 lakh+ extra — without investing a single rupee more.

So before your next SIP, don’t just check returns — check what you’re paying for. Because in investing, costs compound — and so does wisdom.