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Market Intelligence › Basic Terminologies
How TER is deducted, and what one percent means over a long time
Published by The Retail Trader · JUL 24, 2026 · Mutual Funds & AMC
A mutual fund's fees are not debited from your bank account. They are cut a little every day from inside the NAV — so they do not show, but you pay the full amount.
The total expense ratio includes fund management fees, administration, distribution and other operating costs. It is an annual percentage, but it is deducted on a daily basis.
The return you see is already after TER. So when comparing two funds, there is no need to subtract the fees from the return again.
A small percentage does not stay small over a long time:
• The fees are charged every year on the whole corpus, not just on profit.
• They are charged even in a loss-making year.
• That amount leaves your portfolio, so its compounding is no longer yours either.
• This is why over a long horizon the TER difference becomes bigger than the difference in returns.
Looking at TER is necessary but not the only criterion. The cheapest fund can still be a wrong choice if it does not match your goal's asset class — cost is a tie breaker, not the whole decision.
This article is for educational purposes only — it is not a buy or sell recommendation, it makes no claim of guaranteed returns, and it is not advisory. Rules, rates and mechanics are changed from time to time by the exchanges, SEBI and RBI, so verify every number yourself with your broker or an official source.