If you invest in mutual funds, you might usually check how much return a scheme has given over time or how experienced the fund manager is. But one small detail often gets missed – Expense Ratio. This tiny number plays a big role in deciding how much money stays in your pocket at the end of the day.
Let’s explore how a low expense ratio can help your investment grow, especially in a volatile market. We’ll also see which 5 mutual funds gave the best returns with the lowest expenses in the last 5 years.
What Is Expense Ratio and Why It Matters?
The Expense Ratio is the fee charged by the fund house every year to manage your investment. It is a small percentage that is directly deducted from the Net Asset Value (NAV) of your mutual fund. So, you don’t pay it separately, but it reduces your actual returns.
Here’s a simple example:
- If your fund has a 1% expense ratio, then ₹1 will be deducted annually for every ₹100 invested.
- This means lower net returns for you, especially in a slow market where growth is already limited.
Even a 0.5% difference in the expense ratio can impact your long-term returns in lakhs if you’re investing for 10-15 years.
Why Choosing Low-Cost Funds Makes Sense in Uncertain Markets
When the stock market is uncertain or under pressure, mutual fund returns are often unstable. In such times, the expense ratio becomes even more important. If your fund has a high fee, it needs to work harder to give you decent profits after fees are deducted.
That’s why many smart investors today are switching to Direct Plans of mutual funds, which have lower expense ratios compared to Regular Plans.
These 5 Mutual Funds Gave Best Returns with Lowest Fees in 5 Years
Based on data from Value Research, here are the top 5 equity mutual funds in India that delivered strong returns in the last 5 years and also kept their expense ratio low.
1. Edelweiss Flexi Cap Fund – Direct Plan
- Expense Ratio: 0.49%
- 5-Year Return: 26.46%
- Why it stands out: Consistent performance and solid fund management make this a strong pick for long-term investors.
2. PGIM India Flexi Cap Fund – Direct Plan
- Expense Ratio: 0.43%
- 5-Year Return: 25.86%
- Why it stands out: One of the most efficient funds with balanced exposure to large, mid, and small-cap stocks.
3. Canara Robeco Flexi Cap Fund – Direct Plan
- Expense Ratio: 0.56%
- 5-Year Return: 22.63%
- Why it stands out: A well-managed portfolio with good risk-reward balance, and one of the oldest names in mutual fund houses.
4. Navi Flexi Cap Fund – Direct Plan
- Expense Ratio: 0.43%
- 5-Year Return: 21.94%
- Why it stands out: Navi is known for offering the lowest cost mutual funds in the country. Good for new investors looking to start SIPs.
5. Baroda BNP Paribas Focused Fund – Direct Plan
- Expense Ratio: 0.48%
- 5-Year Return: 21.87%
- Why it stands out: It focuses on high-conviction stocks and has consistently outperformed many peers with higher fees.
Things to Check Before You Invest in Any Mutual Fund
While the expense ratio is important, don’t make it the only reason for choosing a fund. Here are some other things to look for:
1. Fund History:
Always check if the fund has a track record of at least 5 years or more. A longer history gives you confidence in its stability.
2. Fund Manager Experience:
The person managing your money should have good experience handling ups and downs in the market.
3. AUM (Assets Under Management):
This shows how much money investors have already trusted with the fund. A higher AUM often indicates popularity and trust.
4. Category of Fund:
Know whether you’re investing in a Large Cap, Mid Cap, Small Cap, or Flexi Cap fund. Each comes with different risk levels.
5. Investment Objective:
Match the fund’s objective with your personal goal – whether you want growth, stability, or a mix of both.
Direct Plan vs Regular Plan – Why Direct Is Better for Returns
- Direct Plans are bought directly from the fund house and do not involve agents or brokers. So the expense ratio is lower.
- Regular Plans are sold through agents who get a commission, so the expense ratio is higher.
Even a difference of 0.5% in fees can result in lakhs of rupees difference if you are investing for a long period like 15–20 years.
Key Takeaway for Smart Investors
In today’s market, where returns are unpredictable, small details like the Expense Ratio can make a big difference in your final earnings. While choosing mutual funds, don’t forget to include this in your checklist.
The 5 mutual funds listed above are great examples of how a low fee doesn’t mean low performance. In fact, they are giving top-notch returns without eating into your profits. So, if you are planning your SIP or lump sum investment soon, you might want to consider these options.
