Difference between revisions of "Expense Ratio"

Revision as of 05:40, 27 September 2017

Expense Ratio if the expenses incurred for running and maintaining the scheme.
This includes all expenses that the scheme has incurred in running the scheme, such as, Administrative, management, advertising expenses, commission to distributors etc.
Each plan of the scheme will have a different expense ratio.
In most cases, DIRECT plans have lesser expense ratio compared to REGULAR plan.
An expense ratio of 1% per year means that each year 1% of the fund's total assets will be used to cover expenses.
So, the lower the expenses are, the better it will be for its investors.
Usually, a 1 to 1.5% for an Equity mutual fund under DIRECT plan is a common expense ratio.
The higher the AUM of the scheme, the lower the expenses will be. So, in general, it is better to invest in a higher AUM scheme over a tiny AUM scheme when considering expense ratio factor.
Investment management of a passive mutual funds does not involve active stock or sector selection or churning or make large portfolio changes in one go. Hence, expenses of a passive fund are lower than that of an active fund.
Expense ratio of debt schemes is more important than that of equity scheme.
Institutional plans are offered with lower expense ratios for large investors.

Fees of various service providers, such as Trustees, AMC, Registrar & Transfer Agents, Custodian, & Auditor
Selling expenses including scheme advertising and commission to the distributors
Expenses on investor communication, account statements, dividend / redemption cheques / warrants
Listing fees and Depository fees
Service tax

Franklin High growth companies fund has expense ratio is 2.3% in regular plan but 1% in direct plan

This might be due to the case where most of the investors in the scheme are with DIRECT plan and very few in the REGULAR plan.

How can we get to know this?

We can get the AUM data for every scheme and plan from AMFI Website

From the above data, it is clear that DIRECT plans are not the core contributors of assets.

So, the next possibility is money given to distributors.

Looks like the REGULAR plan of this scheme is paying distributors well.

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 *[[GROWTH option vs DIVIDEND option]]
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