Investor Corner/The asset classes/Mutual Fund Core Concepts
2.3.7 Expense Ratio (TER)
The expense ratio, or TER, is the annual fee a fund charges, expressed as a percentage of its assets. It is deducted daily from the fund's returns, not billed separately, which makes it easy to overlook.
A cost you never see charged directly
Unlike a brokerage fee that appears as a line item, the expense ratio is built directly into a fund's NAV calculation every single day. An investor never receives a bill for it, and the fund's quoted return is already net of this cost, which is exactly why the fee is so easy to underestimate its cumulative impact.
Why even a small difference compounds meaningfully
A fund charging 1.8% a year versus one charging 0.8% a year is giving up an extra 1 percentage point of return every single year, for as long as the money stays invested. Over two or three decades, that difference compounds into a genuinely large gap in final wealth, even though the two figures look close together on paper.
How to use the number well
Expense ratio should be judged relative to the category a fund belongs to, since active equity funds naturally cost more to run than index funds or debt funds. Within any single category, a meaningfully higher expense ratio than peers is a cost that needs to be justified by genuinely better, sustained performance, not simply accepted without comparison.
How PriLytics helps. PriLytics tracks the true return on every fund after all costs, giving you the honest, net performance figure rather than a headline number. See holdings and returns.