Exit load and expense ratio: the hidden costs of investing

You never pay a mutual fund a bill. Every charge is taken out of the scheme’s assets before the NAV is struck, which makes the cost of owning a fund the most consequential number that nobody looks at.

It is also a number that changed shape recently. SEBI’s revised expense framework took effect on 1 April 2026, and it did something genuinely useful: it stopped pretending one figure could describe everything.

The three components

Under the new framework, what you pay is disclosed as three separate things rather than one bundled percentage:

1. Base Expense Ratio (BER) — the fund house’s own charge: management fee, administration, registrar costs, distributor trail if you hold a Regular plan. This is the part SEBI caps.
2. Brokerage and transaction costs — what the scheme pays to trade. Also capped, and the caps were roughly halved: 6 basis points for cash-market trades (from 12) and 2 bps for derivatives (from 5).
3. Statutory levies — GST, STT, stamp duty, exchange and regulator fees. Charged on actuals, and deliberately placed outside the BER cap.

That third point matters when you compare a fund’s ratio today against its ratio from a year ago. Levies used to sit inside the cap and now sit outside it, so the headline caps look lower partly because their contents shrank. The reform is real — the caps genuinely came down — but it is not as large as a naive before-and-after reading suggests.

What the caps are

BER limits fall on a sliding scale by scheme size: the bigger the fund, the lower the maximum percentage it may charge, on the reasoning that costs do not rise in proportion to assets.

• Open-ended equity schemes — from 2.10% at the smallest end down to 0.95% for the very largest.
• Debt schemes — a lower ladder, topping out around 1.85%.
• Index funds and ETFs — 0.90%, down from 1.00%.
• Closed-ended equity — 1.00%, down from 1.25%. Non-equity — 0.80%.

Also gone: the extra 5 bps schemes with an exit load were previously allowed to charge.

These are ceilings, not typical values. Real index funds on mainstream indices charge a small fraction of 0.90%, and a large equity fund usually charges well under its cap. The cap tells you what is legal; the fund page tells you what is actual.

The charges that are not in the ratio

Three more costs, paid by you directly rather than by the scheme:

• Exit load — a percentage deducted if you redeem early, typically around 1% within a year for equity schemes, often with a free allowance. It is paid back into the scheme, not to the AMC. It exists to stop short-term money imposing trading costs on everyone else.
• Stamp duty — 0.005% on every purchase, including each SIP instalment. Small, statutory, and identical across every scheme.
• Securities Transaction Tax — deducted on redemption of equity-oriented units.

None of these is large. They are worth knowing about mainly so that a slightly lower-than-expected redemption amount does not look like an error.

Why a fraction of a percent is not a rounding error

Cost is subtracted from return every single year, and it compounds against you in exactly the way returns compound for you.

Take ₹10 lakh invested for 20 years. At a gross 12% it becomes about ₹96.5 lakh. Take one percentage point off — a completely ordinary difference between an active fund and an index fund on the same benchmark, or between a Regular and a Direct plan — and 11% produces about ₹80.6 lakh.

That single point costs roughly ₹16 lakh, more than the original investment. Not because the fee is large, but because the fee is charged on the compounding rather than on the principal.

What to actually do about it

• Use Direct plans for new money. This is the largest, most certain improvement available to a retail investor, and it requires no view on markets.
• Compare expense ratios within a category, never across. A liquid fund and a small-cap fund have no business being compared on cost. The screener filters on expense ratio, and every fund page shows the figure against its category average.
• Weigh cost most heavily where skill matters least. In large caps, where most active funds lag the index, the fee is close to the whole story. In a genuinely specialist mandate it is one input among several.
• Do not chase a 0.05% difference between two index funds while ignoring tracking difference. The cheaper fund is not automatically the closer tracker.

⚠️ Expense ratios, AUM and holdings on this site are collected from public fund pages on a best-effort basis and refreshed hourly, so they can lag a fund’s own factsheet by a day or two. The NAV and every return computed from it come from AMFI directly.

Key takeaway

Cost is deducted daily, invisibly, and compounds against you exactly as returns compound for you — one percentage point over twenty years can cost more than the principal. Use Direct plans, compare expense ratios only within a category, and weight cost most heavily where manager skill matters least. From April 2026 the ratio is disclosed in three parts, with levies outside the cap.