How expensive is your fund house?

While it may  be justifiable to pay a higher expense ratio in a fund that outperforms, you should definitely exit one whose performance is below par while expenses are above the median.

Cost tips

• Keeping an eye on expense ratio is important because money saved is money earned
• Fund houses charge the expense ratio irrespective of performance, even in years when they give negative returns
• It may be okay to pay a higher expense ratio in an equity fund that is an outperformer
• But, in debt funds, where the returns are usually in single digit, a low expense ratio becomes crucial: You don’t want a large percentage of your returns to be taken away by the expense ratio    
• Look at the median figures in the table for different categories. Usually, there are several funds in each category that have a good record. You will be better off going with one that charges you less than the median  
• The difference between the median expense ratios of standard and direct plans in equity funds is 0.83-1.04 percentage points. In the debt category, it is 10-85 basis points. Over the long term, it definitely pays to go direct for investors who don't need hand-holding