A 1% annual expense ratio can cost an Indian investor ₹69.97 L over 30 years on a ₹10,000/month SIP.
Fee Cost = SIP-FV(gross return) − SIP-FV(gross return − expense ratio), where SIP-FV = P × {[(1 + r)^n − 1] ÷ r} × (1 + r) applied at each net rate
| Input | Value |
|---|---|
| Monthly SIP Amount | ₹10,000 |
| Expected Annual Return (before fees) | 12% |
| Annual Expense Ratio | 1% |
| Investment Period | 30 yr |
| Lifetime Cost of Fees | ₹69,96,859 |
| Corpus After Fees | ₹2,83,02,278 |
| Corpus at Zero Fees | ₹3,52,99,138 |
| Fees as % of Final Corpus | 19.82% |
Why a “small” expense ratio is a large number
A mutual fundA pooled investment managed for many investors at once.’s expense ratioThe annual fee a fund charges, as a % of your money. is deducted from the fund’s NAV every day, so it isn’t a one-time charge — it’s a permanent drag on the return you actually earn. The calculator compounds the same monthly SIPInvesting a fixed amount at regular intervals, automatically. twice: once at your expected gross return, once at that return minus the expense ratioThe annual fee a fund charges, as a % of your money., and reports the gapA jump between one bar’s close and the next bar’s open. between the two corpora as the lifetime cost of the fee.
What is a good expense ratio for a mutual fund in India?
For index/passive funds, under 0.5% (many now under 0.2%) is competitive; for actively managed equity funds, 1-1.5% is typical for direct plans (regular plans, which pay commission, run 0.5-1% higher). Anything meaningfully above these ranges needs an active fund to consistently beat its index by more than the extra fee to justify the cost.
Direct plan vs regular plan — how much does that expense ratio gap actually cost?
Regular plans typically carry a 0.5-1% higher expense ratio than the same fund’s direct plan, since the regular plan pays a distributor commission out of the same fee. Run this calculator with a 0.5-1% expense ratio difference over a 20-30 year SIP horizon to see the actual rupee gap — it is usually large enough that switching to direct is worth the one-time paperwork.
Does a higher expense ratio ever pay for itself?
Only if the fund’s manager delivers gross outperformance greater than the extra fee, consistently, after accounting for the fact that most active funds underperform their benchmark over long periods once fees are netted out. For index funds tracking the same benchmark, there is no performance difference to justify a higher expense ratio — the cheaper fund wins by construction.