Mutual Funds: You might think that if the return of a fund is 12% or 15%, then you will also get the same benefit by investing. But this does not happen because the expense ratio comes in between. If you do not pay attention to this, then it can also reduce your profits.
Mutual funds are considered to be a very popular scheme in today’s time. In this, you can invest a fixed amount every month through SIP. You can also invest a lump sum amount. Mutual funds are market linked schemes, so its return also depends on the market. But according to experts, this scheme can give huge profits in the long term. Most experts estimate an average return of 12% in mutual funds in the long term.
Usually you might think that if the return of a fund is 12% or 15%, then you will also get the same benefit by investing. But this does not happen because Expense Ratio comes in between. Never invest in Mutual Funds without knowing about Expense Ratio, otherwise your profit may decrease. Know here what it is.
Understand what is expense ratio
Asset Management Companies (AMC) manage mutual funds. AMC bears the cost of fund distribution and marketing, as well as expenses like transfer custodian, legal and auditing of the mutual fund. All these expenses are recovered from the investors who buy the units of the mutual fund. After deducting all such expenses, the net asset value of the mutual fund scheme is calculated. In simple words, the management cost of your mutual fund is called expense ratio. The expense ratio of any fund decides how cheap you will get a fund. A low or high expense ratio also affects your returns.
Expense ratios are not recovered at one go
Every company sets its own expense ratio. Expense ratios are not charged at once. Fund houses calculate their daily expenses, after which it is calculated on a daily basis. Annual expense ratios are divided into the trading days of the year. Which are applied on the total NV. Expense ratio shows how much fees your mutual fund management is charging from your investment portfolio.
There are many types of mutual funds
There are many types of mutual funds such as equity funds, debt funds, balanced or hybrid funds. Equity funds invest the money taken from investors in shares. Debt funds invest in fixed income instruments such as treasury bills, corporate bonds and government securities. Hybrid funds are a mixture of equity and debt funds.
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