The expense ratio denotes that percentage of the mutual fund's total net assets/corpus that goes towards meeting its expenses. These expenses are recurring in nature and must be differentiated from one-time expenses like loads (on entry and exit).
The fund's recurring expenses that are broadly covered by the expense ratio are fund management fees, the marketing and selling expenses and registrar fees, among other charges.
All these expenses are borne by the mutual fund. In other words, all these expenses are deducted from the net assets/corpus of the fund. Since the NAV (net asset value) per unit is based on the net assets, higher net assets for a given number of units will result in a higher NAV.
Conversely, lower net assets for a given number of units will result in a lower NAV. Since expenses erode the net assets, one way for a mutual fund to improve its returns is by keeping expenses on the lower side.
However, investors would do well to understand that this doesn't mean that funds with lower expense ratios are necessarily better than the funds with higher expense ratios. Investors should appreciate that the expense ratio is just one parameter amongst many others, which is used to judge a fund's attractiveness. What a lower expense ratio effectively does is that it provides investors with a better chance to rake higher returns.
Scheme LIC MF Index - Sensex Plan (G) Reliance Index-Sensex Plan (G) UTI Master Index Fund (G)
Expense ratio 2.50 1.49 0.75
From the above table we can clearly see that the expense ratio of UTI Master Index Fund is very low as compared to other two 2 funds. Thus when an investor takes a decision whether to invest or not to invest in any of the above mentioned funds, the above table gives a clear picture stating that UTI is the right fund to invest in as far as expense ratio is concerned.
The fund's recurring expenses that are broadly covered by the expense ratio are fund management fees, the marketing and selling expenses and registrar fees, among other charges.
All these expenses are borne by the mutual fund. In other words, all these expenses are deducted from the net assets/corpus of the fund. Since the NAV (net asset value) per unit is based on the net assets, higher net assets for a given number of units will result in a higher NAV.
Conversely, lower net assets for a given number of units will result in a lower NAV. Since expenses erode the net assets, one way for a mutual fund to improve its returns is by keeping expenses on the lower side.
However, investors would do well to understand that this doesn't mean that funds with lower expense ratios are necessarily better than the funds with higher expense ratios. Investors should appreciate that the expense ratio is just one parameter amongst many others, which is used to judge a fund's attractiveness. What a lower expense ratio effectively does is that it provides investors with a better chance to rake higher returns.
Scheme LIC MF Index - Sensex Plan (G) Reliance Index-Sensex Plan (G) UTI Master Index Fund (G)
Expense ratio 2.50 1.49 0.75
From the above table we can clearly see that the expense ratio of UTI Master Index Fund is very low as compared to other two 2 funds. Thus when an investor takes a decision whether to invest or not to invest in any of the above mentioned funds, the above table gives a clear picture stating that UTI is the right fund to invest in as far as expense ratio is concerned.