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expens

Do you know how Mutual Funds recover their Expenses?

by Holistic Leave a Comment | Filed Under: Mutual Funds

Have you ever given a thought how Mutual Funds recover their Expenses?

Do they recover it from you before they declare the NAVs of the respective schemes? Are the returns you receive from your mutual funds investments is the net of expenses incurred by them while managing the funds?

What is Mutual Fund Expense Ratio?

A Mutual fund incurs expenses like fund management fee, agent commissions, registrar fees, and selling & promoting expenses. Now you know that Mutual Funds incur expenses while managing your funds, the next question in your mind could be how much. This leads to the concept of mutual fund expense ratio.

‘Mutual Fund Expense ratio’ is nothing but the recurring cost per unit- incurred to operate a scheme – and is charged to your assets. Such mutual fund expense ratio is calculated periodically but is charged daily on the NAV. This annual recurring expenses is disclosed every March and September and is expressed as a percentage of the fund’s average weekly net assets.

How Mutual Fund Expense Ratio Impacts Your Returns?

Holistic Investment - Mutual Fund Ratio

Mutual Fund Expense ratio helps you to know how much you pay a fund every year to manage your investment. In case you have invested Rs1,00,000 in a MF, whose mutual fund expense ratio is 1.8%, you are paying Rs1,800 every year to manage your investment. That is, if MF is earning, say, 15%, your return would be 13.2%. The NAV’s are declared net of expenses. It is therefore important for you to know what the expense ratio of a mutual fund is.

A higher mutual fund expense ratio will mean lower return for you and vice versa.

SEBI’s Regulation on Mutual Fund Expense Ratio:

Different Mutual Funds have different expense ratio, and to regulate this SEBI has put a cap that a mutual fund can charge, which are:

Net assets Equity schemes Debt schemes
First Rs. 100 crore 2.50% 2.25%
Next Rs. 300 crore 2.25% 2.00%
Next Rs. 300 crore 2.00% 1.75%
On the balance of assets 1.75% 1.75% 1.50%

SEBI also provided a recent option for investors to buy funds directly from MFs (not through the distributor). If bought directly, the NAV, called the direct plan NAV, will not bear the fee paid to distributor. That means the direct plan NAV will be higher than the regular NAV to that extent. This way, you may increase your returns on your MF investment.

Should Mutual Fund Expense Ratio matter to you?

In competitive developed countries market it does matter because returns are often in single digits, the mutual fund expense ratio can cause a dent in the amount you can take home. But in markets such as India, where equity funds have comfortably managed double digit returns, mutual fund expense ratio has not really mattered much, especially in equity funds.

For instance, the average return of equity funds over the last 10 years was 23 per cent annually. This return, which is post expenses, is good enough. You may select a reasonably performing mutual fund and may ignore the mutual fund expense ratio.

But in case of a debt fund, mutual fund expense ratio matters. Mutual fund expense ratio plays a crucial role selecting a debt fund to invest.

Where to find the Mutual Fund Expense Ratio?

Whenever, you may think of investing in a new fund offer, you have to go through the offer document section called ‘Fees and expenses of the scheme’. This will give you the maximum expense ratio that a mutual fund can incur.

For an existing scheme, you can look at monthly fact sheet or the Key information Memorandum for the recurring scheme expense.

Mutual Fund Expense Ratio and Tenure of the Investment:

Again, if you are looking at 6 months or 1-2 yrs investment scenario, mutual fund expense ratio will not matter much, you can probably just avoid it, but if you are looking from a long-term investment like 5-10-20 yrs.

In that case, you have to know about the history of the mutual fund expense ratio and follow its likely projections and performance.

Also, you have to keep it mind that a lower mutual fund expense ratio does not always lead to a better-managed fund. The fact is a good fund is one that delivers good return with minimal expenses.

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  1. James Raj says

    January 22, 2018 at 2:53 pm

    Thanks for the hi-quality posts.

    Reply

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27. June, 2023.
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Binamra Dash
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Very knowledgeable team. Guided me properly with my concerns.
Murugan Bala
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I have been investing through Holistic for the past 4 years and my experience with them have been really good. The team of Rajan and Ramalingam doing excellent services in meeting my needs through proper guidance on investment options customized. Theya re always available on any specific needs time to time.I would recommend their services to my friends and colleagues too.
Neeraja R K
Neeraja R K
15. May, 2023.
Working with holistic investment planners was a really wonderful experience for me. For me the entire team had been very supportive in all ways. Their working strategy is well planned and methodical. They always keep me informed and updated about my investments, so that i can take informed decisions. The team first helps us understand the basics of investments, then they collect data, work with the data and then provide investments solutions according to our goals which i find it the best. Good luck to the entire team.
deepika kulkarni
deepika kulkarni
21. April, 2023.
We have availed holistic service from last couple of years and are very happy with our decision. Their systematic approach has helped us plan our finances and meet our goals. They provide very comprehensive and detail plan and resource management every 6 months which ensures we are on right track to achieve our goals. Rajan and Ramalingam from holistic are always there to help us with our queries. They have also accommodated any changes to our goals or resources mid year in a professional manner.
Ashook Panneerselvam
Ashook Panneerselvam
21. March, 2023.
For the past year, I have been interacting with Holistic Investment. I frequently read Nanayam Vikatan, which is a publication owned by the Vikatan family, and I was impressed by their financial advice. My brother also suggested holistic investing, and he also got excellent financial advice. Holistic Investment follows a methodical approach that I really liked because they first fully understand our financial situation "As Is," which includes "Assets" and "Liabilities," as well as our short-, mid-, and long-term goals, on the basis of which they provide a detailed plan on how to achieve our goals for which they are recommending various investment options. Even in the investment advice, why do they suggest particular mutual funds and what is the justification behind it, which adds transparency to the client. One essential factor is that they are always available. Even if I needed to make some urgent financial decisions, they were very helpful and kind to answer my questions via phone calls, WhatsApp messages, and emails. I was very happy with their service. Periodic reviews are also crucial, even though I have forgotten that they occur once every three months, and I also intend to renew this year.
Mahesh S
Mahesh S
19. February, 2023.
I have availed Holistic investment service for last 1yr against my early retirement decision. they provided me comprehensive detailed report how to move ahead with my existing resources. moreover, they are available to me whenever i have any doubt.. highly recommend others to avail their service
Google rating score: 4.5 of 5,
based on 104 reviews

Google Reviews

Lingesh MMG
Lingesh MMG
20. September, 2023.
Na eppo tha financial goal la enna therunju kitta..enaku full support panna thuku thank you..🥰 friendly nalla pesuninga...
Ravi L
Ravi L
15. August, 2023.
Very knowledgeable and professional team, guided me with the precise financial solutions and timely suggestions.
Hardik Dave
Hardik Dave
5. July, 2023.
Holistic Investment is really nice and trust worthy financial planner. They plan things in realistic manner and also consider future dimensions of items also. They are always available for small or big queries, and also share knowledge and help you become more financial literate, and take right decisions in all financial matters.
Dr. Padmakar Wagh
Dr. Padmakar Wagh
27. June, 2023.
Mr Ramalingam who is the Director of Holistic investments has a excellent financial planning knowledge, the entire Holistic team has been very helpful in my financial planning journey and execution. This is my third year of financial planning with Holistic investments and so far I am satisfied with the progress I have made.
Binamra Dash
Binamra Dash
13. June, 2023.
Very knowledgeable team. Guided me properly with my concerns.
Murugan Bala
Murugan Bala
16. May, 2023.
I have been investing through Holistic for the past 4 years and my experience with them have been really good. The team of Rajan and Ramalingam doing excellent services in meeting my needs through proper guidance on investment options customized. Theya re always available on any specific needs time to time.I would recommend their services to my friends and colleagues too.
Neeraja R K
Neeraja R K
15. May, 2023.
Working with holistic investment planners was a really wonderful experience for me. For me the entire team had been very supportive in all ways. Their working strategy is well planned and methodical. They always keep me informed and updated about my investments, so that i can take informed decisions. The team first helps us understand the basics of investments, then they collect data, work with the data and then provide investments solutions according to our goals which i find it the best. Good luck to the entire team.
deepika kulkarni
deepika kulkarni
21. April, 2023.
We have availed holistic service from last couple of years and are very happy with our decision. Their systematic approach has helped us plan our finances and meet our goals. They provide very comprehensive and detail plan and resource management every 6 months which ensures we are on right track to achieve our goals. Rajan and Ramalingam from holistic are always there to help us with our queries. They have also accommodated any changes to our goals or resources mid year in a professional manner.
Ashook Panneerselvam
Ashook Panneerselvam
21. March, 2023.
For the past year, I have been interacting with Holistic Investment. I frequently read Nanayam Vikatan, which is a publication owned by the Vikatan family, and I was impressed by their financial advice. My brother also suggested holistic investing, and he also got excellent financial advice. Holistic Investment follows a methodical approach that I really liked because they first fully understand our financial situation "As Is," which includes "Assets" and "Liabilities," as well as our short-, mid-, and long-term goals, on the basis of which they provide a detailed plan on how to achieve our goals for which they are recommending various investment options. Even in the investment advice, why do they suggest particular mutual funds and what is the justification behind it, which adds transparency to the client. One essential factor is that they are always available. Even if I needed to make some urgent financial decisions, they were very helpful and kind to answer my questions via phone calls, WhatsApp messages, and emails. I was very happy with their service. Periodic reviews are also crucial, even though I have forgotten that they occur once every three months, and I also intend to renew this year.
Mahesh S
Mahesh S
19. February, 2023.
I have availed Holistic investment service for last 1yr against my early retirement decision. they provided me comprehensive detailed report how to move ahead with my existing resources. moreover, they are available to me whenever i have any doubt.. highly recommend others to avail their service
Google rating score: 4.5 of 5,
based on 104 reviews

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