Start investing with a
free Kristal.AI account.


Simple. Secure.

*Error message

What is Expense Ratio?

Updated on 24 Feb 2020

Look up any ETF or investment strategy, and you are sure to see the term ‘Expense Ratio’ mentioned alongside. This is an important factor in calculating the total fees paid to your wealth manager. Learn more!

1. What is Expense Ratio?
2. Components of expense ratio
3. Types of Expense Ratio
4. Implications of Expense Ratio
5. Changes in Expense Ratio
6. Expense Ratio Limit by SEBI

What is Expense Ratio?

The most basic definition of expense ratio is that it is the annual fee that all funds or exchange-traded funds (ETFs) charge their shareholders. In other words, you can think of it as a ratio per unit cost of managing a fund. To get help you get good returns from your investment, the asset manager takes various steps to get the best possible result.

This requires expenses. The asset manager and a team of analysts come up with various formulas to detect an annual fee that the shareholders have to pay as the maintenance cost.

The process involves reallocation of your investments in the right funds, management under the AUM (assets under management) and then advertisements of the same to garner maximum attention in the market and thus improve the worth of the shares. The other aspects that are involved in this process are securities to incur the objectives of the scheme, registering and transfer, custodian, audit fees and various other legal fees.

The expense ratio depends on the size of the funds. If they are small then the expense ratio or fee is high and when the funds are higher and bigger, the expense ratio should ideally drop considerably.

Components of expense ratio

When it comes to expense ratio to be levied by mutual fund investors, the funds do it on a daily basis. However, this is not the case with other mega investors as they only get to know about the expense once every 6 months. Since expense ratio can cover up a major chunk of your returns, it is important that you know about it in depth. Generally, the expense ratio can be divided into three broad categories.

  • Management Fees – Management fees is basically the fees required to formulate a plan on how to use your investments. Such decisions require personnel with high levels of skill and experience and naturally a fee has to be paid to avail such services. In most cases, it is not more than 1% of the fund assets.
  • Administrative Fees – This is the second step of managing your funds, which includes customer support, services, information emails and all the other communication you need to have a better understanding of the running of your investments.
  • 12-1b Distribution Fees – This is the fees that is used to promote or publicize your assets to attract more traction.

All three fee structures are calculated with one year as the time period and then this amount if cut from the assets of the investment in the name of expense ratio.

Types of Expense Ratio

  • Annual Gross Expense Ratio
  • Annual Net Expense Ratio
  • Prospectus Gross Ratio
  • Prospectus Net Expense Ratio

Implications of Expense Ratio

The implications of Expense Ratio are major when it comes to higher expense ratios. The expense ratio is more when the funds or assets are not that high, leading to less profitability and the profit increase when you have larger funds. As a result, the amount associated with the expense ratio becomes more important in cases where there are moderate to lesser yields.

Another major implication of expense ratio comes when you need to differentiate between actively managed and passively managed funds. In case of an actively managed equity funds, the fund manager can create a big alpha but that is justifiable in a way because of the higher returns. However, if you find a wide divergence between the returns of your fund and index funds, then it is time for you to move on and make a switch.

Changes in Expense Ratio

To understand the changes in expense ratio, you first need to understand the difference between fixed and variable expenses. A variable expense like management fees is variable because it depends on the amount of assets. Therefore, it usually has a fixed percentage of 0.75% irrespective of the size of the assets.

However, a fixed variable like rent or an audit fee is something that has a fixed amount to be paid and therefore has varied percentages of the total asset. These two factors are the major determinants in understanding how a change occurs in expense ratio.

Expense Ratio Limit by SEBI

As per limits specified in SEBI Mutual Funds Regulations, every expense of an AMC must be managed under Regulation 52. The Total Expense Ratio (TER) should not be more than 2.5% for the first Rs. 100 Crores of average weekly total net assets, 2.25% for the next Rs. 300 crores and 2% for the next Rs 300 crore and 1.75% for the remaining AUM. The limit for debt funds is 2.25% on top of which SEBI allows all mutual funds to charge 30 basis points as an incentive to break into tier 2 areas.

An expense ratio is something that is unavoidable and therefore there is no need to think badly of it. In fact, you should just think that if you do not pay this expense ratio then it would be almost impossible for your assets to grow, hence making it a necessity rather than a liability.


The materials and data contained herein are for information only and shall in no event be construed as an offer to purchase or sell or the solicitation of an offer to purchase or sell any securities in any jurisdiction. Kristal Advisors does not make any representation, undertaking, warranty or guarantee as to the update, completeness, correctness, reliability or accuracy of the materials and data herein. All opinions, forecasts or estimation expressed herein are subject to change without prior notice. Kristal Advisors and its affiliates accept no liability or responsibility whatsoever for any direct or consequential loss and/or damages arising out of or in relation to any use of opinions, forecasts, materials and data contained herein or otherwise arising in connection therewith.

Change your country to India?

You’re now visiting Kristal.AI Worldwide.
To explore diverse offerings in Indian and global products, select India as your country.




Hong Kong




Accredited Investor Declaration

This is offered only to Accredited and Institutional Investors as defined under the Securities and Futures Act, Chapter 289 of Singapore (“Act”), which broadly comprises of regulated financial Institutions, large corporates, high net worth individuals and sophisticated investors.

An Accredited Investor is an individual
  • Whose net personal assets exceed in value SGD 2 million (or it’s equivalent in a foreign currency) with value of his/her primary residence capped at SGD 1 million, or
  • Whose financial assets (net of any related liabilities) exceed in value SGD 1 million (or it’s equivalent in a foreign currency), or
  • Whose income in the preceding 12 months is not less than SGD 300,000 (or it’s equivalent in a foreign currency)

I agree to opt-in as Accredited Investor and will submit required documentation to confirm the same.

< Back Proceed as Private Wealth

Wealth Management Solutions

Enabling clients to invest in trending themes like FAMANGThe FAMANG Kristal invests in Facebook, Apple, Amazon, Netflix and Alphabet’s Google stocks. Assets are carefully chosen by an algorithm in order to deliver a superior returns based on past performance. The strategy is rebalanced every quarter., TECHGlobal Technology ETFs is a genetic algorithmic strategy focussed specifically on the Technology sector., ESGProvides exposure to higher rated environmental, social, and governance (ESG) companies while accessing large- and mid-cap stocks in Europe, Australia, Asia and the Far East., etc. with a single click or just create your own thematic basket.

Future-proof your portfolio and capture emerging investment themes.


Explore and Identify

Select from a range of expertly designed trending and diverse themes

Efficient Execution

Enabling easy exposure to your preferred themes without the hassle and costs of individual security selection and execution

Only the Best

A ready-made collection of Kristals that derive the best of the specific asset class or theme

Unique Mix

An optimised blend of ETFs and individual counters, enhancing efficiency and profitability

Contact our Relationship Manager

Diversify your portfolio with exclusive Private Equity, Pre-IPO deals, VC Funds & other investments like Bitcoin, Gold, Hedge Funds and many more.

Kristal fractionalizes difficult-to-access deals and opportunities.


Instant Access

A wide range of alternative asset classes such as Gold, Bitcoins, Hedge Funds and many more; readily made available

Risk Management

Enables investments in diversified assets hence spreading the risk

Easy Tracking

Enables you to get a consolidated view of investments in all assets at one place, hence facilitating easy monitoring and tracking

Exclusive Deals

Access to exclusive Venture Capitalist, Startup as well as pre-IPO investment opportunities

Low Investment Tickets

Facilitates fractionalization of investments in deals

Contact our Relationship Manager

Professionally managed funds with active investment strategies, screened for you by our investment committee to diversify your portfolio.

Enabling clients to access exclusive investment strategies. View Funds



Provides Access to Professional Fund Managers

Low Investment Tickets

Facilitates fractionalization of investments in funds


A wide spectrum of investment strategies ranging from Arbitrage to Credit to Hedge Funds and many more


No additional costs are charged by Kristal.AI

Exceptional Performance

Funds with an impressive track record and potential for high profitability


Benefits from insights of the expert selection and advisory team

Easy Management

No time consuming management of portfolios

Contact our Relationship Manager

Customize products based on your market outlook and specific needs across equities, bonds, gold and more.

For investors looking to enhance portfolio yield based on market views.


Enhanced Earnings

Structures with potential to enhance portfolio yield based on market movements


Product features can be designed to articulate investor views


A flat and transparent fee structure like nowhere else

One-Click Access

A single feature ‘Ideas’ enables you to access recently launched and trending market opportunities

Contact our Relationship Manager

Can’t find what you are looking for? Create your own exclusive investment strategy with risk management & periodic reporting.

For seasoned investors who prefer to design their own portfolio.


Empowered Investing

Enables clients to create their own custom portfolio based on their unique needs

Unlimited Choice

Access to all possible exchange traded assets

Flexible Management

Flexibility in delegating the portfolio management role to us or actively taking up the day to day investment decisions, in your custom Kristal

Custom Fee Structure

A simple, transparent and a customized fee structure

Access to Expertise

Custom performance reporting as well as advisory support

Contact our Relationship Manager