Total expense ratio

The annual cost of running a mutual fund or exchange-traded fund, as a percentage of its assets: the management fee, the distributor's commission in a regular plan, and other operating costs. It is deducted from the fund's assets every day, so the published net asset value is already after it.

Hold ₹2,00,000 in a fund with a 1.5% expense ratio and you pay about ₹3,000 a year. Over twenty years at a 12% return before costs, an active fund charging 1.5% ends about 21% below an index fund charging 0.2%, unless the active manager beats the index by the gap.

SEBI caps the ratio in slabs that fall as a scheme grows, and the fund house must disclose it. An insurer's expense ratio is a different measure.

Cost is the one return input known in advance.