(ii) The Expense Ratio of a mutual fund scheme is the cost of running and managing a mutual fund, which is charged to the scheme. What expenses are covered in the Expense Ratio and how does it affect the NAV?

Under SEBI (Mutual Funds) Regulations, 1996, Mutual Funds are permitted to incur / charge certain operating expenses for managing a mutual fund scheme such as sales & marketing/ advertising expenses, administrative expenses, transaction costs, investment management fees, registrar fees, custodian fees, audit fees as a percentage of the fund's daily net assets. This is commonly referred to as 'Expense Ratio'. This covers the following expense items: Fees paid to service providers like trustees, Registrar & Transfer Agents, Custodian, Auditor, etc. Asset management expenses, Commissions paid to distributors, Other selling expenses including advertising expenses, Expenses on investor communication, account statements, dividend/redemption cheques/ warrants, Listing fees and Depository fees, or Goods & Service tax. Expense ratio is the cost of running and managing a mutual fund which is charged to the scheme. All expenses incurred by a Mutual Fund and Asset Management Company will have to be managed within the limits specified under Regulation 52(6) & (6A) of the SEBI (Mutual Funds) Regulations, 1996. The expense ratio is calculated as a percentage of the Scheme's average Net Asset Value (NAV). The daily NAV of a mutual fund is disclosed after deducting the expenses. Thus, the expense ratio has a direct bearing on a scheme's NAV - the lower the expense ratio of a scheme, the higher the NAV.