Best Mutual Fund With Lowest Expense Ratio

Money is an extremely crucial aspect of anyone’s life. Everyone is seeking money and working as hard as they can to get it. However, only a few people can see the other side of money, namely the saving side. While the majority of individuals work hard to make money, there are others that work smarter and earn more by cutting expenditures. This post will teach you about Mutual Funds and their Expense Ratio. It will also provide the mutual funds with the lowest cost ratios to assist you to decide which one to invest in.




What Is The Expense Ratio In Mutual Funds?


Mutual fund investment is rapidly expanding. Many individuals have begun to invest in it, and many new Fund Houses are emerging to supply mutual funds with less expense ratios.


One of the most significant advantages of investing in mutual funds is that they are managed by specialists with extensive market experience. However, in order to provide this service, they demand a fee from investors since they enlist the assistance of highly qualified specialists and benefit from larger profits as a result. This fee levied by the Fund Houses is known as the Expense Ratio, sometimes known as Management Expense, and it typically ranges from 1-3% of one’s overall investment.


The expense ratio is proportional to the Assets Under Management of the Mutual Fund (AUM). When a company’s Asset Under Management (AUM) is larger, the Management Expense or Expense Ratio is lower; conversely, when the AUM is smaller, the Expense Ratio is higher. As a result, when investing, one should also evaluate the Mutual Fund’s Fee Ratio and strive to invest in the mutual funds with the lowest expense ratio in India to achieve larger net returns. They can also choose to invest in an index fund with the lowest fee ratio.


How Does The Expense Ratio Affect Returns?


We’ll use an example to answer this question. Assume X and Y are two persons. They each have Rs.10,000 to put in mutual funds. X invested in ABC Mutual Fund, whereas Y invested in PQR Mutual Fund (one of the mutual funds with the lowest expense ratios). After a year, it was discovered that both of their Mutual Funds provided the same 10% return. However, ABC Mutual Fund charged 2% as the Expense Ratio, while PQR Mutual Fund charged 1% as the Expense Ratio or the Management Expense. In this scenario, Y earned more than X because, while the gross returns were the same, Y’s net returns were greater due to a lower Expense Ratio.


As a result, while the difference in expense ratio may not be significant when multiplied by the entire amount invested, it makes a significant impact and might affect one’s gains. For example, in the above example, the difference in profits is only 1%. If someone contributes Rs.100, this may not seem like much. But what if someone contributes Rs.100 Cr? This 1% will make a big impact in net returns.


As a result, it is usually recommended to invest in low expense ratio mutual funds, or, if feasible, in the mutual funds with the lowest expense ratio.


Best Mutual Fund with Lowest Expense Ratio


  • Navi Nifty Next 50 Index Fund Direct Growth


Sachin Bansal (co-founder and ex-Chairman of Flipkart) and Ankit Agarwal  (ex-banker with Deutsche Bank and Bank of America) created Navi AMC (previously Essel mutual fund). Anmol Como Broking Private Limited is AMC’s sponsor, and it is registered with the Securities and Exchange Board of India (SEBI) under the same name. Navi AMC Limited is the investment manager for Navi Mutual Funds, while Navi Trustee Limited is the trustee for Navi AMC Limited. Not only does Navi AMC provide financial services and products, but it also provides Personal Loans, Home Loans, Vehicle Loans (two-wheeler), SME Business Loans, and General Insurance.


Navi AMC was founded in December 2018 with the goal of making financial services simple, reasonable, and easily accessible. It establishes products in the financial services market using a technology-driven and customer-centric strategy. Navi purchased Essel Finance Mutual Fund in January 2021 and rebranded it Navi. As of March 2022, the AMC manages assets of Rs. 697.75 crores.


Navi Nifty 50 Index Fund Direct Growth is a Navi Mutual Fund Other Mutual Fund Scheme. On July 15, 2021, this scheme was made accessible to investors. Aditya Mulki currently manages the Navi Nifty 50 Index Fund Direct Growth fund. The fund now has a total asset under management (AUM) of Rs. 571.33 crores, and the latest NAV as of November 29th, 2022 is Rs.11.85.


The Navi Nifty 50 Index Fund Direct Growth has a risk rating of Very High. The minimum SIP investment is Rs100. The minimum Lumpsum investment is Rs. 10.


Fund Name Expense Ratio Fund Size (in Cr) 1Y Returns All Time
Navi Nifty 50 Index Fund Direct Growth  0.06% 571.33 10.32% 13.13%


How To Choose The Best Mutual Funds For The Lowest Expense Ratio?


Before selecting a fund for investing, the expense ratio should be carefully considered. Because a high expense ratio might have an effect on net return. The expense ratio is the cost of administering a mutual fund per unit. It is the proportion of a mutual fund’s total costs to its total assets under management. The expense ratio of a fund increases as the asset under management decreases. In contrast, if a mutual fund has a large number of assets under administration, the expense ratio will be low.


A total expense ratio of 2.25%, for example, suggests that 2.25% of the fund’s assets will be used to meet its operational expenditures each year.


Mutual fund firms can charge a fee to cover operating expenditures like management fees, administrative fees, and marketing and distribution expenses, according to SEBI standards.


Building and administering a mutual fund needs extensive and ongoing study. The fund manager and his team of specialists are responsible for ensuring that clients receive substantial returns on their investments.


The expense ratio of a fund increases as the asset under management decreases. Alternatively, if the fund manages a larger asset pool, the expense ratio will be lower.


Is The Expense Ratio A Factor To Consider While Investing?


Yes, one of the most significant aspects to consider when investing in a mutual fund is the expense ratio. To illustrate, if a fund may yield a 12% return but has an expense ratio of 1.50%, the net return on investment is 10.50%. A fund that achieves the same returns but has a lower expense ratio of 0.5% will have a net return of 11.5%.


To maximise your investment results, it is sometimes advisable to invest in a fund with a low expense ratio.


A greater expense ratio shows that the mutual fund is managed using more funds. A smaller expense ratio, on the other hand, suggests that fewer resources are utilised to administer the mutual fund.


Assume you put INR 10,000 into a mutual fund. The fund’s expense ratio is 2%. The fund house will receive INR 200 from you. This amount may look little when contemplating a short-term investment, but it will multiply if you invest for the long run (10 years or more). You will note that investing in a fund with a lower expense ratio may have resulted in greater performance.


As a result, while selecting a fund to invest in, it is essential to consider the cost ratio as one of the characteristics.


How Can You Reduce Your Investment’s Expense Ratio?


The expense ratio will almost certainly reduce your returns. As a result, a lower expense ratio means reduced expenses and better profits. A 1% variation in the expense ratio might have a considerable influence on the ultimate corpus. You have no say in how much a fund house charges. However, it is entirely within your power to select a fund with a low expense ratio. The following are some strategies for lowering your investment’s expenditure ratio:


Choose Funds With A Low Expense Ratio


Choose the funds that have the lowest expense ratio in that category. Both the fund and AMFI have access to this information. Give the expenditure ratio considerable weightage when shortlisting funds within a category. In other words, suppose you have shortlisted two funds from the same category. Both funds are ideally aligned with your investing objectives. To optimise your returns, choose the fund with the lowest expense ratio of the two.


Consider Investing In Passive Mutual Funds


Another approach to investing in funds with the lowest expense ratio is passive investing. Because the fund manager regularly churns the portfolio to create greater returns, actively managed funds frequently have a higher expense ratio. As a result, passive funds that try to track a benchmark index, such as index funds or ETFs, have a lower expense ratio. These funds simply attempt to duplicate the benchmark index as precisely as possible, resulting in minimal fund management fees.


Choose Direct Mutual Fund Plans


Direct plans can be used instead of regular plans to reduce your expense ratio. This removes the need for marketing and commissions, cutting the expense ratio. Direct plans, on the other hand, are only appropriate for individuals who are familiar with mutual funds and have the time to handle their assets. If you lack any of them, it is preferable to invest in regular plans. Because the appropriate fund selection, entry and exit strategies recommended by an advisor will help you earn larger returns. As a result, a little proportion of expenditure becomes insignificant in comparison to the benefits generated by expert counsel.


Did You Know That There Are Costs Oher Than Total Expense Ratios (TER)


It’s worth noting that the expense ratio isn’t the only cost to consider when investing in mutual funds. Here are some additional expenses that you must face.


Entry loads were banned in 2009, although advisors are able to charge consumers advising fees based on the value of the service they deliver. This is in addition to the expense ratio charged by the fund. The advisor might charge Rs.150 for the first time and Rs.100 for future investments for investments exceeding Rs.10,000.


If you exit the fund before the specified date, you will be charged an exit load. This exit load time limit is typically 6 months for debt funds and 1 year for equity funds, although it can vary. Exit loads guarantee that the burden of departing investors does not fall on continuing investors, but they are an extra expense to consider.


Equity funds are subject to securities transaction tax (STT), whereas debt funds are not! When equity funds are redeemed, a securities transaction tax on the selling amount must be paid. This sum is taxed at the same rate as equity sales. This is also outside the scope of TER.


What Did Warren Buffett Have To Say About Expense Ratios?


In his now-famous letter to shareholders in 2016, Warren Buffett praised Sir John Bogle, creator of Vanguard Funds, for his contribution to wealth creation. According to Buffett, Bogle demonstrated that it was feasible to earn tremendous wealth just by manipulating expenditure ratios. It’s not unexpected coming from a top-tier stock picker and active investor like Buffett. Herein is the argument’s wisdom.


Vanguard is a passive investor in the sense that it does not pick stocks. Vanguard funds are predicated on the notion that beating the market is difficult, and selecting funds that beat the market is even more difficult. As a result, Vanguard only invests in good indexes that may provide solid equity returns with minimum risk and extremely low expenses. Index funds, as previously said, do not need to actively manage money, therefore fees are cheaper.


According to index fund research, Vanguard alone has saved mutual fund investors over $600 billion since its inception. All of this money has transformed directly into profit for the investors. That is why expenses are important, and it is especially noteworthy coming from the best stock pickers and active investors of all time.




When investing in a mutual fund, one should evaluate not only the expense ratio but also Net Asset Value (NAV), historical returns, Asset Management Company (AMC), Asset Under Management, exit load, and fund manager’s expertise. These variables also have an impact on the Mutual Fund’s performance. Remember that you should focus on growing your gross returns as well as your net returns; the expense ratio will only enable you to do that. As a result, concentrating on gross returns is just as critical, if not more so.


As a result, one should not invest in a Mutual Fund or Index Fund just because it is the mutual fund or index fund with the lowest expense ratio. To make the best selection and get the most returns while avoiding risks, one should perform adequate research and invest after evaluating their investment purpose, risk appetite, and time horizon of investing.




  • Are There Any Additional Expenses Than The Expense Ratio?


Yes, there are fees other than the expense ratio that must be paid, including exit loads, security transaction costs, and taxes, which can reduce the net profits obtained from a mutual fund investment.


  • Do I Have Influence Over The Expense Ratio?


No, you have no say in the Expense Ratio that the Fund House charges, however, you do have a say in the Mutual Fund you invest in. As a result, before investing your hard-earned money in a Mutual Fund, consider the Expense Ratio as well as other variables.


  • What Is The Best Expense Ratio?


Although there is no optimal cost ratio, the ideal expense ratio for efficient and greater net returns should be between 0.5% and 0.75% to ensure that the fund is actively managed by competent Fund Managers.


  • What Are The Primary Components Of Expense Ratio?


Management fees, administrative expenditures, and promotional charges are the three primary components of the expense ratio. Management fees are professional fees given to fund managers in exchange for operating a mutual fund scheme. Fund houses recruit experienced fund managers who bring experience and skill to bear in difficult situations. However, they must be compensated well in order to join the team.


  • What Is Included In The Expense Ratio As Administrative Costs?


Administrative costs support the day-to-day operations of various mutual fund schemes. It 

covers fees for customer service, records storage and collecting, office infrastructure, and research and analysis of various securities.


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