Top Performing Mutual Funds with Lowest Expense Ratio 2022
|Fund Name||Expense Ratio (%)||3 Year Returns (%)|
|Nippon India Junior BeES FoF Regular Growth||0.28||13.80|
|ICICI Prudential Sensex Index Fund Growth||0.29||13.80|
|UTI Nifty Index Fund Regular Plan Growth||0.31||13.70|
|IDFC Nifty Fund Growth||0.35||13.60|
|ICICI Prudential Passive Strategy Fund(FOF) Growth||0.36||13.50|
|HDFC Index Sensex||0.4||13.80|
|HDFC Index Nifty 50||0.4||13.80|
|Nippon India Index Fund Growth||0.4||13.50|
|ICICI Prudential Nifty Index Plan Regular Growth||0.4||13.50|
|DSP Nifty 50 Index Fund Regular Growth||0.41||13.40|
|SBI Gold Fund Regular Plan Growth||0.42||15.90|
|Nippon India Gold Savings Fund Growth||0.42||15.80|
How to Select Best Mutual Funds with Lowest Expense Ratio
The expense ratio is an important factor to consider before shortlisting a fund for investment. Since a high expense ratio can have an impact on the net return. The expense ratio is the per-unit cost of managing a mutual fund. It is the ratio of a mutual fund’s total expenses to the fund’s total assets under management. When a fund’s asset under management is smaller, the expense ratio will be higher. Alternatively, if a mutual fund has a high asset under management, the expense ratio will be lowest.
For example, a total expense ratio of 2.25% means that 2.25% of the fund’s assets will be utilized to cover its operating expenses every year.
You can explore our article on Mutual Fund Charges
As per SEBI’s guidelines, mutual fund houses can charge a certain fee to cover operational expenses such as management fees, administrative charges, marketing and distribution expenses.
Building and managing a mutual fund requires thorough and continuous research. The fund manager and his team of professionals are on the job to ensure that investors generate significant returns from their investments.
When a fund’s asset under management is smaller, the expense ratio will be higher. Alternatively, if the fund has a bigger asset under administration, the expense ratio will be lower.
Returns were updated as on 13th Apr 2022.
Explore: Best Mutual Funds to Invest in 2022
Is Expense Ratio an Important Factor to Consider While Investing?
Yes, the expense ratio is one of the important factors to consider while investing in a mutual fund. To elaborate, if a fund is able to generate a 13% return, but the expense ratio is 2.25%, the net return for the investment would be 10.75%. While a fund that generates the same returns but has a lower expense ratio of 1.5%, the net return from this fund will be 11.5%.
Thus, it is often preferable to invest in a fund with a low expense ratio to enjoy maximum returns from your investment.
A higher expense ratio indicates that the management is using higher funds to manage the mutual fund. On the contrary, a lower expense ratio indicates lower resources are used to manage the mutual fund.
Say you are investing INR 10,000 in a mutual fund. The expense ratio of the fund is 2%. You will be paying INR 200 to the fund house. This sum may appear insignificant if you are considering a short-term investment, but this amount will be compounded if you invest for the long term (10 years or more). You will notice that you could have had better results if you had invested in a fund with a lower expense ratio.
Therefore, it is important to consider the expense ratio as one of the parameters while choosing a fund to invest in.
How To Reduce Expense Ratio on Your Investment?
It is quite certain that the expense ratio will lower your returns. Thus, a lower expense ratio translates to lower expenses and higher returns. Even a 1% difference in expense ratio might significantly impact the final corpus. You have no control over how much a fund house can charge. However, the choice of fund is definitely in your control to pick a fund with a low expense ratio. Following are the ways to lower the expense ratio on your investments:
1. Pick Funds with Low Expense Ratio
Select funds with the lowest expense ratio in that category. The information is available from both the fund and AMFI. While shortlisting funds belonging to a category, give some weightage to the expense ratio as well. In other words, say you have shortlisted 2 funds belonging to one category. Both the funds perfectly align with your investment goals. Now, to choose between the two, you can pick the fund with the lowest expense ratio to maximize your returns.
2. Invest on Passive Mutual Funds
Passive investing is another way to invest in funds with the lowest expense ratio. Actively managed funds often have a higher expense ratio because the fund manager constantly churns the portfolio to generate higher returns. Therefore, passive funds such as index funds or ETFs that aim to track a benchmark index have a lower expense ratio. These funds just try to replicate the benchmark index as closely as possible, and therefore, fund management expenses are lower.
3. Select Direct Mutual Fund Schemes
Instead of regular plans, you can choose direct plans to lower your expense ratio. This eliminates the need to pay for marketing and commissions, lowering the expense ratio. However, direct plans are suitable only for those investors who have knowledge about mutual funds and have the time to manage their investments. If you lack any of the two, it is better to invest in regular plans. Since the right choice of funds, right entry and exit strategies suggested by an advisor will help you generate higher returns. Thus, a small percentage of expense becomes negligible in comparison to the returns you will be generating with professional advice.