Expense Ratio – How does it effect for 4-5 year Goals

POSTED BY sunil ON February 21, 2013 3:19 pm COMMENTS (16)

How does any Expense ratio effect your earnings for a period of 4-5 Years.

Is it Substantial or negligible (given the fact you choose a good Fund with High Expense Ratio).

I am asking this for some calculations to confirm on one of my Goals.

16 replies on this article “Expense Ratio – How does it effect for 4-5 year Goals”

  1. Dear Sunil, Earlier there was no control in investors hand for this expense ratio thing. Now after the introduction of direct plans, there is a control in investors hand.

    Just like my earlier example of HT 200, if I’m investing using a broker/distributor like fundsindia or I-direct, HDFc bank ISA, the expense ratio ‘ll be 1.79%.

    If you opt to invest directly the ER ‘ll be 1.19%.

    Now do tell me the money earning ‘ll be more or not in direct option.

    thanks
    Ashal

  2. sunil says:

    Perfect, Somehow i missed this point…
    Sorry for that. And thanks a lot for the patience.

    You guys are awesome.

    Regards,
    Sunil.

  3. sunil says:

    Hmmmm , Yes Ramesh the thought process is correct.

    The Funds in question are Canara Robeco Tax Saver and Quantum Tax Saver.

    While one is an already established (stay in market for long duration) and other one getting is Foot hold right….

    I dont find significant differnces between these two in terms of Fund Management, Blend of Portfolio and Asset Allocation for Large, Mid and Small Caps…

    I am only confused between these two because both seems appealing and one has the lowest Expense Ratio… Hance this long pause from me before moving ahead….

    Thanks,
    Sunil.

    1. Ramesh says:

      1. Why do you think Canara Robeco fund will be able to continue its performance, in light of the fact that this fund’s manager is managing it only since last 5 months. And all the managers who have contributed for its good past performance have left.
      2. While in Quantum’s fund, this manager is there since last 5 years, and has a pretty decent management style. Also, the AMC has good ethics value system.

      So, in between these 2 funds, there is no choice for Canara Robeco’s fund for me.
      Expense ratio does not come into picture at all.

      To be fair, even if the expense ratios were reversed, meaning if Quantum has expense ratio of 2.3 while canara has 1.2, I would still opt for Quantum’s fund.

    2. At the end of the day if you have not overestimated returns when calculating for your goals expense ratio will not matter.

  4. sunil says:

    Dear FFC,

    IF both the Funds past performance is same approximately and portfolio blend is approximately same.
    Would it make sense then to fall back to Expense ratio.

    Though i agree that this should not be the only thing to select a Fund but still given the huge amount differnce in y case, can i be biased to the least expense ratio Fund???

    Thanks,
    Sunil.

    1. Ramesh says:

      Consider the quality of the fund management team, which is the most important point to look for.
      If you get same quality at lower expense ratio, do opt for that. Otherwise, leave aside the expense ratio aspect.

      Consider the thought of having IDFC Nifty Index fund which has an expense ratio of 0.25%. If not, why? 🙂

  5. sunil says:

    Thanks Ashal for the clarification.

  6. Expense ratios can always be compared bet similar funds.
    Just that expense ratio is not the primary criterion for fund selection. Performance is.

  7. Dear Sunil, for the given query, your comparison should be between same fund’s direct & indirect plan. For example HDFC Top 200 Indirect plan ER is 1.79% & Direct plan’s ER is 1.19%. Now compare the performance on your own for any given %age of return & calculate.

    Thanks

    Ashal

  8. sunil says:

    Dear FFC for an Investment of 8000 per month over a period of 5 years it says the difference between a 1.25 and 2.29 expense ratio’s can be 20346 (considering an annual growth rate of 10).

    I feel this is considerable amount 🙁 .

    This is the difference between Canara Robeco and Quantum Tax Saver Funds.

    1. The performance of the funds has to be taken into account. If the more expensive funds outperforms then you will not loose. All once can do is choose a fund with low expenses and leave it at that. Breaking your head beyond that is unnecessary stress. No two funds will ever perform similarly.

      Also loss has to be measured with respect to a goal. If both funds have produced enough for your goal then expense rations don’t matter.

      Good performance is more important

    1. Muthu Krishnan V says:

      Does anybody know when expense ratio is deducted from the fund? Is it on a daily basis or at some fixed periods?

      1. Ramesh says:

        Daily Basis. It is mentioned in the SID of the schemes.

        1. Muthu Krishnan V says:

          thanks ramesh, checked the Scheme information document (SID) of QLTEF. It says “The AMC reserves the right to calculate Investment Management Fees and recurring expenses on the basis of daily or weekly average net assets depending on the periodicity of the publication of NAV”. So for qltef, it should be deducted daily.

Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.

Download Our FREE Ebook!

Available only for first 100 people today

Download Our FREE Ebook!

Available only for first 100 people today