Expense ratio in rupees: what 0.5%, 1% and 2% cost per day

A percentage you never feel

An expense ratio is quoted as a percentage of what you hold, and it is deducted a little each day inside the NAV. Because nothing leaves your bank account, it is easy to ignore. Converting it into rupees makes it visible.

The cost per day on ₹10 lakh

Take a holding of ₹10,00,000 and three expense ratios:

(Daily figures divide the yearly cost by 365. Real funds deduct on the value of the assets each day, so the rupee amount moves as the portfolio grows or falls.)

A 2% fund costs four times what a 0.5% fund does on the same money. That difference, about ₹15,000 a year on ₹10 lakh, is paid whether the fund had a good year or a bad one.

The cost is charged on gains and losses alike

Expense ratios do not wait for a profit. If a fund falls 10% in a year and charges 2%, your holding is hit by both. This is why costs matter most where returns are modest, such as in debt funds, where a 1% cost may be a large share of the yield. See debt fund expense ratios by category.

What the gap becomes over 20 years

Costs compound against you just as returns compound for you. Assume, for illustration, a fund that earns 12% a year before costs, held for 20 years from a ₹10 lakh start:

• With a 0.5% expense ratio, you net about 11.5% a year, and ₹10 lakh grows to roughly ₹88 lakh.
• With a 2% expense ratio, you net about 10% a year, and ₹10 lakh grows to roughly ₹67 lakh.

The 1.5-point cost difference shifts the final value by about ₹21 lakh, over a fifth of the outcome in one case. The numbers are rounded and assume the same gross return, which real funds do not guarantee. Subtracting the ratio from the return is a simplification, but it is close enough to show the scale.

You can test your own figures on the impact of 1% calculator.

Where to look and what to compare

• Compare within a category. A large-cap fund and a small-cap fund have different typical costs. Judge a fund against its peers, not across categories. Equity expense ratio by fund house shows how widely they vary.
• Compare plans. The same scheme costs less in its direct plan. The gap in rupees is set out in direct versus regular cost in lakhs.
• Check the date. The ratio can change, and it is published periodically by the fund house. Use the latest disclosed figure.
• Do not chase the lowest at any price. A fund with a slightly higher cost that fits your goal and risk may serve you better than a cheap one that does not.

A simple habit

Before buying, write down the expense ratio as rupees per year on the amount you plan to invest. A number like "₹10,000 a year" focuses the mind more than "1%". Then ask whether the fund's record and role in your plan justify it.

This post is educational, not financial advice. The 12% gross return is an assumption for illustration, not a forecast. Always check a scheme's current expense ratio.