When investing in mutual funds, fund houses incur costs including management fees, administrative expenses, and transaction costs, collectively reflected in the Total Expense Ratio (TER). According to Value Research data, these expenses are deducted from scheme assets and reflected in daily NAV, meaning higher expense ratios can reduce investor returns. Active funds generally show wider cost spreads than passive funds, with investors advised to compare costs across peers and assess whether higher expenses are justified by performance.
Among active diversified equity categories, large-cap funds have the widest expense-ratio spread in regular plans, ranging from 0.48% to 2.1%, representing a difference of 1.62 percentage points. Large & mid-cap funds show the narrowest spread at 0.84 percentage points (1.26% to 2.10%). In direct plans, flexi-cap and large-cap funds have the highest spread at 1.74 percentage points each. Small-cap funds have the narrowest direct-plan spread at 0.48 percentage points (0.33% to 0.81%).
The expense-ratio spread is considerably narrower for passive funds, with flexi-cap being the only category where maximum regular-plan expense ratio exceeds 0.9%, reaching 1.27%. Among regular plans, flexi-cap has the widest spread at 1.09 percentage points, while ELSS funds have the narrowest at 0.38 percentage points. In direct plans, large-cap has the widest spread at 0.64 percentage points, while multi-cap shows the narrowest at just 0.05 percentage points.
Active sectoral and thematic funds show the most pronounced cost differences, with several categories reaching the SEBI ceiling of 2.10% in regular plans. The Quant category has the widest spread at 1.28 percentage points, while Manufacturing and ESG have the narrowest at 0.51 percentage points. In direct plans, factor-based funds show the widest spread at 1.21 percentage points, with Auto & Transportation having the narrowest gap at 0.17 percentage points.
Direct plans are generally cheaper than regular plans as they are bought directly from asset management companies without distributors. According to the data, direct plans typically have lower expense ratios than regular plans across all categories. The cost difference becomes more pronounced in active sectoral and thematic funds, with several categories reaching the SEBI ceiling in regular plans but remaining below it in direct plans.
