{"id":759,"date":"2021-08-23T16:21:32","date_gmt":"2021-08-23T16:21:32","guid":{"rendered":"https:\/\/www.blackhacked.com\/?p=759"},"modified":"2022-02-03T07:35:17","modified_gmt":"2022-02-03T07:35:17","slug":"why-the-expense-ratio-of-mutual-funds-matters-to-investors","status":"publish","type":"post","link":"https:\/\/www.blackhacked.com\/why-the-expense-ratio-of-mutual-funds-matters-to-investors\/","title":{"rendered":"Why the expense ratio of mutual funds matters to investors?"},"content":{"rendered":"
One of the prominent advantages of investing in a mutual fund <\/strong>is that you can enjoy the knowledge and experience of experts who continuously monitor your investments. These experts handle portfolios of well-researched stocks that offer optimum returns. The cost of managing and handling your mutual fund investment<\/strong><\/a> by asset management companies (AMCs) is charged to your account. This cost of investing in a mutual fund<\/strong> is popularly known as the expense ratio<\/strong>.<\/p>\n To understand the expense ratio in a mutual fund<\/strong>, you need to get acquainted with how the mutual fund <\/strong>works, the different costs and fees, and the prescribed government regulations.<\/p>\n The key components of the expense ratio<\/strong> are as follows:<\/p>\n The above components are the main elements of the expense ratio<\/strong>. This cost is deducted from the total value of the asset before sharing returns with investors. There are other expenses, viz. exit load and brokerage fees charged over and above the expense ratio<\/strong>.<\/p>\n This collective cost is then calculated as a percentage of the mutual fund<\/strong>\u2019s average net asset value called the expense ratio of a mutual fund<\/strong>. When deciding which mutual funds to invest in<\/strong>, you should consider its expenses and fees.<\/p>\n Impact of a fund\u2019s expense ratio<\/strong><\/p>\n When the mutual fund<\/strong>\u2019s assets are small, the expense ratio<\/strong> is considerably high compared to the lower expense ratio<\/strong> for mutual funds<\/strong><\/a> with a more significant asset coverage. The high value of assets covers the expenses, and the burden of cost is spread over many investors.<\/p>\n SEBI Regulations<\/strong><\/p>\n In April 2020, the Securities and Exchange Board of India (SEBI) laid down new regulations for AMCs and mutual fund<\/strong> managers. As per the regulations, SEBI has expressed a limit on the total expense ratio<\/strong> charged by an AMC depending on its average net asset values.<\/p>\n\n
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\n Asset value under management<\/strong><\/td>\n The expense ratio of daily net asset value (equity)<\/strong><\/td>\n The expense ratio of daily net asset value (debt)<\/strong><\/td>\n<\/tr>\n \n First Rs. 500 crore<\/td>\n 2.25%<\/td>\n 2%<\/td>\n<\/tr>\n \n Next Rs. 250 crore<\/td>\n 2%<\/td>\n 1.75%<\/td>\n<\/tr>\n \n Next Rs. 1,250 crore<\/td>\n 1.75%<\/td>\n 1.50%<\/td>\n<\/tr>\n \n Next Rs. 3,000 crore<\/td>\n 1.60%<\/td>\n 1.35%<\/td>\n<\/tr>\n \n Next Rs. 5,000 crore<\/td>\n 1.50%<\/td>\n 1.25%<\/td>\n<\/tr>\n \n Next Rs. 40,000 crore<\/td>\n Decrease of 0.05% for every increase in assets under management (AUM) of 5,000 crores or part thereof<\/td>\n Decrease of 0.05% for every increase in AUM of 5,000 crores or part thereof<\/td>\n<\/tr>\n \n Above Rs. 50,000 crore<\/td>\n 1.05%<\/td>\n 0.80%<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n