Costs, SIPs and staying invested
Two things you control completely: how much you pay in costs, and whether you keep investing when it feels uncomfortable.
Expense ratio
Every fund charges an annual fee, the Total Expense Ratio (TER), deducted from the NAV daily. Index funds may charge 0.1 to 0.3%; actively managed equity funds often 0.5 to 2%.
A 1% difference sounds small. On ₹10,000 a month for 25 years at 12%, it costs roughly ₹30 lakh by the end. Costs compound just like returns, in the other direction.
₹10,000 a month for 25 years: the extra 1% costs ₹30.71 lakh.
Direct and regular plans
Every fund has a regular plan, which pays a commission to the distributor, and a direct plan, which doesn't. The portfolio is identical; the direct plan's TER is lower, often by 0.5 to 1% a year. If you don't need a distributor's help, the direct plan leaves more with you.
SIPs and staying invested
A SIP buys more units when prices are low and fewer when they are high, which is called rupee cost averaging. It also removes the temptation to time the market.
The biggest risk to a SIP is stopping it during a fall, exactly when it's buying cheap units. Treat a market fall as a sale, not a signal to leave.
Key takeaways
- 1Expense ratios compound against you every year.
- 2Direct plans cost less than regular plans for the same portfolio.
- 3SIPs work best when you don't stop them in falls.
Try it with your own numbers
Finish this lesson
Reaching the end marks it complete. You can also mark it yourself.
Educational content, not investment advice. Figures are illustrative.