TER represents the overall cost of managing a mutual fund, including operational and fund-running expenses. It is regulated by the Securities and Exchange Board of India (SEBI) and capped by rules.
According to Rajani, TER typically consists of three components: the base TER, charges related to exit loads, and Goods and Services Tax (GST) on management fees. For instance, a ₹500-crore scheme could have a base TER of 2.25%, an exit-load-related charge of 0.05%, and GST of 0.10%, totaling 2.4%.
The experts noted that some costs, such as management fees and distributor commissions, are controlled by the asset management company (AMC), while others, including GST and registrar fees, are largely fixed.
Mamaji emphasised that first-time investors should carefully read fund fact sheets to understand expense ratios, portfolio turnover, and how the fund performs relative to its benchmark and peers.
Fact sheets also provide additional metrics like the standard deviation, which indicates volatility, and the Sharpe ratio, reflecting the extra return earned per unit of risk. A higher Sharpe ratio is generally considered preferable.
The discussion also clarified the distinction between costs charged to the scheme versus the AMC. While some expenses, such as exit load proceeds, go directly back into the fund, broader marketing or brand-level costs are borne at the AMC level and do not impact individual schemes.
For investors, paying attention to TER and related metrics can help make informed choices and manage expectations for long-term returns.
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(Edited by : Anshul)