TER

TER (Total Expense Ratio) is the annual recurring cost charged by a mutual-fund scheme to its investors, expressed as a percentage of the scheme's daily average net assets. It covers investment management and advisory fees, distribution and marketing costs, trustee fees, registrar and custodian charges, audit fees, and other operational costs that the scheme incurs.

TER is not charged as a separate line-item fee to investors. It is deducted from scheme assets at a daily rate and is already reflected in the published NAV — when you look up a fund's NAV on amfiindia.com, you are seeing the NAV after TER has been deducted. (Source: SEBI (Mutual Funds) Regulations, 1996; SEBI Master Circular for Mutual Funds, June 2024; amfiindia.com.)

SEBI TER limits by category and AUM slab (2024):

SEBI prescribes maximum TER by scheme category and AUM size. For equity funds, the current SEBI-mandated TER caps are:

• AUM up to ₹500 crore: maximum 2.25%
• AUM ₹500–₹750 crore: maximum 2.00%
• AUM ₹750–₹2,000 crore: maximum 1.75%
• AUM ₹2,000–₹5,000 crore: maximum 1.60%
• AUM ₹5,000–₹10,000 crore: maximum 1.50%
• AUM ₹10,000–₹50,000 crore: TBB (to be determined by SEBI slab formula)
• AUM above ₹50,000 crore: maximum 1.05%

Debt funds have lower caps; index funds and ETFs have caps typically in the 0.10–0.50% range. Direct Plans of any scheme carry a TER that is lower than the Regular Plan by the amount of the distributor commission excluded. (Source: SEBI Master Circular for Mutual Funds, June 2024, Chapter on TER; sebi.gov.in.)

How TER affects corpus over time — a quantified illustration:
Two schemes with identical portfolios but TERs of 0.30% (Direct) vs 1.30% (Regular) — a 1% differential — produce very different outcomes over 20 years at the same gross return:

• ₹10,000/month SIP, 12% gross return, TER 0.30% → net return ~11.7% → corpus ≈ ₹95.8 lakh
• ₹10,000/month SIP, 12% gross return, TER 1.30% → net return ~10.7% → corpus ≈ ₹82.5 lakh
• Corpus difference: ₹13.3 lakh on ₹24 lakh invested — the compounded cost of the 1% TER differential.

Illustrative only; actual returns are market-linked and not guaranteed.

TER disclosure requirements:
AMCs must disclose the current TER for each scheme plan on their website and on the AMFI website, updated daily. Investors can compare TERs for equivalent scheme categories across AMCs using the AMFI data portal. (Source: SEBI Master Circular, June 2024; amfiindia.com — TER disclosure portal.)

Additional TER for distribution expenses (B-30 cities):
SEBI permits AMCs to charge up to 0.30% additional TER on new inflows from cities beyond the top-30 (B-30 cities) to subsidise distribution in underserved markets. This additional TER applies only to the B-30 proportion of AUM and is not charged uniformly. (Source: SEBI Master Circular, June 2024; sebi.gov.in.)

What investors should know about TER and fund selection:

• Lower TER is all else equal beneficial — every basis point of TER saved compounds over the investment horizon.
• For passive funds (index funds, ETFs), TER is the primary differentiator between schemes tracking the same index, since the portfolio is identical by construction.
• For active funds, TER is one input among several; the fund's ability to generate returns above its benchmark (alpha) net of TER is the relevant evaluation metric.
• SEBI requires Scheme Information Documents (SIDs) and Key Information Memoranda (KIMs) to prominently disclose the maximum TER applicable. (Source: SEBI Master Circular, June 2024.)

Related terms: NAV, AUM, Direct vs Regular Plan, Exit Load.

Disclosure: MintByte is an AMFI-registered mutual fund distributor (ARN-314872) and an APMI-registered Authorised Person of Motilal Oswal Financial Services (APRN-01658). Content is educational.