Module 4: Some Important ratios/metrics to understand
Total Expense Ratio (TER):
To manage your investments in a mutual fund scheme, the AMC charges something called an expense ratio, expressed as a percentage. As a Mutual fund investor, it is important to be aware that mutual fund investments are not free, and you have to pay for it.
Let’s look at a simplified example of how TER is charged. If the TER of a mutual fund scheme is 1%, it means that an expense of 1% is charged on an investment value of ₹ 1L every year which is ₹1,000/-.
This amount varies based on the change in the expense ratio and also as your investment value changes subject to market conditions.The NAV is declared by the AMC after deducting the expense ratio on a daily basis. You can find this on their website. Lower the expense ratio of a scheme, the higher the NAV - but it is important to note that expense ratio is not the single most conclusive factor in deciding the NAV.
Exit Load:
The amount of money you have to pay when you are selling your mutual fund units. It might be applicable only if you exit the scheme early - below a certain holding period threshold. For example, the scheme may charge a 1% load if you wish to sell your investments before the completion of 1 year and no-load post that.
Task:
It is important to familiarize with these terms as they will help you understand more about your future investments over time.
Mutual Fund investments are subject to market risks, read all scheme related documents carefully.
An Investor education and awareness initiative by Zerodha Mutual Fund.
