Fund Management Costs

Fund management costs refer to the total expenses incurred in running a mutual fund scheme — comprising the fund manager's fee, administrative costs, compliance costs, registrar and transfer agent (RTA) fees, custodian fees, marketing and distribution expenses, and other operational overheads — all of which are charged to the scheme's assets and expressed as the Total Expense Ratio (TER). SEBI caps the TER for equity mutual funds on a sliding scale based on AUM — with a maximum of 2.25% for equity funds with AUM below ₹500 crore, reducing progressively to 1.05% for AUM above ₹50,000 crore. For debt funds, TER caps are lower. Direct Plans — where investors invest directly with the AMC without a distributor — have lower TERs than Regular Plans (which include distributor commissions), making direct plans more cost-efficient for self-directed investors. The difference in TER between regular and direct plans — typically 0.5% to 1% per annum for equity funds — compounds significantly over long investment horizons: on a 20-year investment, even a 0.75% annual cost difference can reduce the final corpus by 12% to 15%. SEBI mandates daily TER disclosure by AMCs on their websites and in the fund fact sheet, enabling investors to compare costs across fund families and categories.