Top 10 Lowest Expense Ratio Mutual Funds in 2024 in India

Welcome to our guide on the Lowest Expense Ratio Mutual Funds!

When venturing into the world of investments, one key factor to evaluate is the expense ratio. This metric can significantly impact your returns. In this blog, we’ll delve into the importance of expense ratios and explore the best mutual funds with lowest expense ratios for 2024. Let’s get started!

Best 10 Lower Expense Ratio Mutual Funds

Here is an educational list we’ve created with the top 10 mutual funds with low expense ratio:

Name of the Fund	Expense Ratio	3Y Returns
Nippon India ETF Nifty Next 50 Junior BeES Fund	0.43%	19.3%
ICICI Prudential S&P BSE Sensex Index Fund	0.27%	25.20%
UTI Nifty 50 Index Fund	0.30%	25.80%
ICICI Prudential Passive Strategy Fund	0.58%	25.90%
HDFC Index Sensex Fund	0.40%	25.70%
HDFC Index Nifty 50 Fund	0.40%	25.90%
ICICI Prudential Nifty 50 Index Fund	0.34%	25.80%
DSP Nifty 50 Index Fund	0.43%	25.70%
SBI Gold Fund	0.42%	11.50%
WhiteOak Capital Tax Saver Fund	0.34%	-

Disclaimer: Please note that the above list is for educational purposes only, and is not recommendatory. Please do your own research or consult your financial advisor before investing.

Note: The data on the best large cap mutual funds with lowest expense ratio in India in the list is from 24th January, 2024.  However, for real-time updates on stock prices and market trends, visit the smallcase stocks collection today!

Overview of the Best 10 Lower Expense Ratio Mutual Funds

Here is a brief overview of the Lowest Expense Ratio Mutual Funds from our mutual fund expense ratio list above:

Nippon India ETF Nifty Next 50 Junior BeES Fund

The Scheme aims to mirror Nippon India ETF Nifty Next 50 Junior BeES’ returns by investing in its units. While this is the objective, achieving it is not guaranteed. It has a low ETF expense ratio India. Nippon Life India Asset Management Ltd, founded on February 24, 1995, manages assets worth 301,204 crores and offers 105 equity, 425 debt, and 71 hybrid mutual fund expense ratio schemes. It has one of the best expense ratio in mutual funds.

ICICI Prudential S&P BSE Sensex Index Fund 

This ICICI Prudential Mutual Fund  scheme aims to mirror the returns of S&P BSE SENSEX TRI by investing in the same stocks with similar weightage. It strives to closely track the index’s performance without attempting to outperform or underperform it. While the goal is to match the index, achieving it is not guaranteed. However, it is one of the lowest expense ratio index funds India. 

UTI Nifty 50 Index Fund

The scheme’s primary goal is to invest in Nifty 50 Index stocks, aiming to mirror the index’s returns passively. Please note, there’s no guarantee of achieving this objective. UTI Asset Management Co. Ltd., established on December 3, 1993, manages assets worth 205,208 crores. They offer a range of 74 equity, 579 debt, and 34 hybrid mutual fund schemes. It is one of the index funds with lowest expense ratio. 

ICICI Prudential Passive Strategy Fund

This ICICI Mutual Fund scheme’s primary goal is to invest in Nifty 50 Index stocks, aiming to mirror the index’s mutual funds returns passively. Please note, there’s no guarantee of achieving this objective. UTI Asset Management Co. Ltd., established on December 3, 1993, manages assets worth 205,208 crores. They offer a range of 74 equity, 579 debt, and 34 hybrid mutual fund schemes. It is also one of the top low expense ratio mutual funds in India. 

HDFC Index Sensex Fund

The HDFC mutual fund aims to match S&P BSE SENSEX Index performance, with possible tracking errors. Please note, achieving this goal isn’t guaranteed. HDFC Asset Management Co. Ltd, established on July 3, 2000, manages assets totaling ₹5,75,774 crores. They offer a range of 62 equity, 190 debt, and 30 hybrid mutual fund schemes. It is one of the best low expense ratio index funds. 

HDFC Index Nifty 50 Fund 

The Scheme aims to achieve returns aligned with the NIFTY 50 Index, though tracking errors may occur. This index fund expense ratio is one of the lowest. Please note that achieving this objective is not guaranteed. HDFC Asset Management Co. Ltd, established on July 3, 2000, manages assets totaling ₹575,774 crores. They currently offer 62 equity, 190 debt, and 30 hybrid mutual fund schemes. It is also one of the best index funds in India with lowest expense ratio. 

ICICI Prudential Nifty 50 Index Fund

This growth scheme actively tracks the Nifty 50 index by investing in a basket of its constituent stocks. The aim is to closely mirror the index’s performance without seeking to outperform or underperform it. While the objective is to closely track the Nifty 50, there’s no guarantee of achievement.

DSP Nifty 50 Index Fund

The Scheme aims to deliver returns in line with the NIFTY 50 Index, while managing tracking error. DSP Investment Managers Pvt. Ltd., founded on May 13, 1996, oversees assets worth INR 138,397 crores. They offer a diverse range of 54 equity, 190 debt, and 21 hybrid mutual fund schemes. It is one of the top less expense ratio mutual funds.

SBI Gold Fund 

The Scheme aims to closely match SBI Gold ETF’s returns. SBI Funds Management Ltd, established on February 7, 1992, manages assets worth ₹579,971 crores, offering 90 equity, 230 debt, and 41 hybrid mutual fund schemes. It is also one of the lowest expense ratio mutual funds India. 

WhiteOak Capital Tax Saver Fund

This scheme primarily allocates 98.27% to equities, with minor portions in debt (0.62%) and other assets (1.11%). Sector-wise, WhiteOak Capital Tax Saver Fund has a significant 28.57% in the financial sector, 10.43% in technology, 8.46% in consumer staples, 8.43% in capital goods, 7.92% in materials, and 36.19% in other sectors. It is also one of the lowest expense ratio mutual funds in India.

What are Lowest Expense Ratio Mutual Funds?

Let’s start by demystifying the Expense Ratio, a fee charged by the Asset Management Company (AMC) to manage your investments. This fee encompasses handling, administrative, and operational expenses, usually presented as a percentage of your total investment, known as the Total Expense Ratio (TER). SEBI, the market regulator in India, governs these expense ratios, specifying category-wise guidelines for fund houses.

From an investor’s viewpoint, equity mutual funds in India tend to have higher expense ratios than debt funds, and actively managed funds usually come with higher costs than their passive counterparts. Ideally, a good or low expense ratio falls within the range of 0.5% to 0.75% for actively managed low cost mutual funds.

How do Lower Expense Ratio Mutual Funds Work?

Lowest Expense Ratio Mutual Funds, often favored by savvy investors, operate on a principle of efficiency and cost-effectiveness. Here’s how they work:

• Cost-Efficient Investment: These funds aim to keep expenses low. This means that a smaller portion of your investment is deducted for operating costs and management fees, leaving more of your money to work for you.
• Diverse Investment Portfolio: Lowest expense ratio funds often consist of a well-diversified portfolio of stocks, bonds, or other assets. The fund manager’s focus is on achieving returns while keeping costs down.
• Passive vs. Active Management: Many low-cost funds employ passive management, tracking an index or benchmark. This approach tends to have lowest fees compared to actively managed funds.
• Long-Term Returns: Lower expenses can contribute to improved long-term returns. As less of your investment is eaten up by fees, your returns have the potential to compound more effectively.

• Investor-Friendly: These funds are investor-friendly, aligning with the interests of those who seek to grow their wealth steadily over time without incurring high costs.
• Transparency: Lower expense ratio funds often prioritize transparency in their operations, making it easier for investors to understand where their money is being allocated.

How to Choose Mutual Funds with Lowest Expense Ratio?

The expense ratio plays a pivotal role in fund selection, impacting net returns. It represents the per-unit cost of managing a mutual fund with lowest expense ratio, calculated as a ratio of total expenses to total assets. Smaller assets result in a higher ratio, while larger assets lead to lower ratios. For instance, a 2.25% expense ratio means that 2.25% of fund assets cover operational costs annually.

SEBI permits fees to cover management, administration, marketing, and distribution. Skilled fund managers strive for significant investor returns. Smaller assets equate to higher expense ratios, whereas larger assets mean lower ratios.

How to Invest in Lowest Expense Ratio Mutual Funds?

Investing in lower expense ratio mutual funds can be a smart financial move, as it can help you keep more of your returns. Here are some steps to consider when investing in these cost-effective funds:

1. Research Fund Options: Start by researching mutual funds with less expense ratios. Use online tools, financial news, and resources like Morningstar or Yahoo Finance to identify funds with a track record of low expenses.

2. Compare Expense Ratios: Compare the expense ratios of different funds to find the lowest-cost options. Lower expense ratios typically mean more of your investment returns stay in your pocket.

3. Diversify Your Portfolio: Avoid putting all your money into a single fund. Diversify your investment across different asset classes and industries. Look for low-cost options in each category.

4. Check Fund Performance: While cost is important, don’t ignore a fund’s performance. Look for funds that have a good track record of delivering returns over time.

5. Review the Fund’s Objectives: Ensure that the fund’s investment objectives align with your financial goals and risk tolerance.

6. Understand Tax Implications: Be aware of the tax implications of your investments. Lower expense ratio funds often generate fewer taxable events, potentially reducing your tax liability.

7. Invest for the Long Term: Lower expense ratios benefit long-term investors the most. Avoid frequent trading and focus on your investment horizon because these are also some of the best long term mutual funds.

8. Consult a Financial Advisor: If you’re uncertain about which lower expense ratio mutual funds to invest in, consider consulting a financial advisor who can provide personalized guidance based on your financial situation and goals.

Example of Investment in Lowest Expense Ratio Mutual Funds

Sarah is considering investing in a mid-cap mutual fund for a 15-year period. She’s comparing two different funds, both with similar performance track records. One fund offers an annual return of 10%, while the other offers 10.5%. However, the first fund comes with an expense ratio of 1%, resulting in a net return of 9%, while the second fund has a higher expense ratio of 1.5%, leading to a net return of 9%.

Although the second fund promises a slightly higher annual return, the lower expense ratio of the first fund makes it the more attractive choice for Sarah. This illustrates the importance of conducting research and opting for the mutual fund with the lowest expense ratio to maximize long-term returns.

Who Should Invest in Lowest Expense Ratio Mutual Funds?

Lowest expense ratio mutual funds are an attractive option for a wide range of investors. Here’s who should consider investing in them:

1. Investors aiming for maximum returns: Opt for funds with low expenses to maximize investment returns.
2. Those seeking reduced investment costs: Consider top mutual funds with low expense ratios to cut down on expenses.

Note that a high expense ratio doesn’t ensure superior performance. Among funds with similar returns, those with lower expense ratios yield more, compounding over time. Investors informed about this advantage should prioritize mutual funds with low expenses.

Why Should You Factor in the Expense Ratio When Making Investments?

When investing in a mutual fund, the expense ratio is a critical factor. For instance, if a fund generates an 8% return and has a 1.25% expense ratio, your net return would be 6.75%. Opting for a fund with a lower expense ratio, let’s say 0.75%, would result in a higher net return of 7.25%.

To enhance your investment outcomes, consider funds with lower expense ratios. A higher expense ratio indicates more resources are allocated for management, whereas a lower ratio suggests efficient fund administration.

Imagine you invest INR 15,000 in a fund with a 1.5% expense ratio. The fund house deducts INR 225. While this may appear minor for short-term investments, its impact can be substantial for long-term investments, such as 15 years. Lower expense ratios often translate to better performance. Hence, when selecting a fund, factor in the expense ratio as a key consideration.

How to Lower Your Investment Expense Ratio?

Lowering your expense ratio is crucial for boosting returns. A mere 1% expense difference can significantly impact your final savings. While you can’t control fund house charges, you have full control over your fund choice. Here’s how to cut costs:

Choose Low Expense Ratio Funds

Opt for funds with the lowest expense ratios in your chosen category, readily available from both the fund and AMFI. When shortlisting funds aligning with your goals, prioritize expense ratios to maximize returns.

Embrace Passive Mutual Funds

Passive funds, like nifty 50 index fund, which is one of the low cost index funds in India, with lowest expense ratio and ETFs, track benchmarks with lower expenses compared to actively managed counterparts. This cost-effectiveness stems from reduced portfolio churn.

Opt for Direct Mutual Fund Schemes

Consider direct plans over regular ones to lower expenses by bypassing marketing and commissions. However, direct plans are suitable for knowledgeable, time-managing investors. If unsure, seek professional advice to generate higher returns, where the expense becomes negligible.

Reducing your expense ratio is a smart strategy to achieve higher returns in your investment journey.

Warren Buffett on Expense Ratio

In his renowned 2016 shareholder letter, Warren Buffett deeply admired Sir John Bogle, Vanguard Funds’ founder, for demonstrating that managing expense ratios could amass substantial wealth. This acknowledgment is surprising, considering Buffett’s expertise as an active investor.

Vanguard’s approach is passive, avoiding stock selection and instead focusing on investing in indices to provide solid equity returns with minimal risk and low costs. By not actively managing funds, expenses remain low.

A study on index funds reveals that Vanguard has saved over $600 billion for mutual fund investors, directly translating into investor wealth. This underscores the significance of cost management, even from legendary active investors.

Costs Other than Total Expense Ratio (TER)

Beyond the expense ratio in mutual funds, these investments also come with additional costs to consider:

1. Advisory Fees: While entry loads are prohibited, advisors can charge fees based on services. For investments over Rs.10,000, advisors may charge Rs.150 initially and Rs.100 for subsequent investments.
2. Exit Load: Exiting before a set period triggers exit load, typically 6 months for debt and 1 year for equity funds. It ensures departing investors don’t burden the remaining ones, adding to your costs.
3. Securities Transaction Tax (STT): Applied to equity funds upon redemption, STT is not imposed on debt funds. It’s separate from the Total Expense Ratio (TER) and levied at the equity sales rate.

Understanding these additional costs is essential for prudent mutual fund investing.

Effect of Expense Ratio on Mutual Fund Returns

Expense ratio is a crucial factor to consider when evaluating mutual funds. It directly impacts your returns, making it a pivotal aspect of investment decisions. Here’s how the expense ratio affects mutual fund returns:

• Reduced Returns: A higher expense ratio translates to lower returns for investors. The mutual fund deducts these fees from your investment, so the higher the expenses, the less you get to keep.
• Long-Term Impact: Over time, even seemingly small differences in expense ratios can have a substantial impact on your overall returns. Lower expenses mean more of your money working for you.
• Competitive Advantage: Mutual funds with lower expense ratios tend to be more competitive. They offer a significant advantage in cost efficiency, which can result in improved performance over funds with higher expense ratios.
• Consistency: Funds with lower expense ratios are often more consistent in delivering returns. High expenses can erode profits, making it harder for the fund to achieve steady growth.
• Goal Achievement: Achieving your financial goals depends on maximizing returns while minimizing costs. Funds with lower expense ratios align with this goal, helping you keep more of your earnings.

The expense ratio directly affects mutual fund returns. Choosing lower expense ratio mutual funds can be a prudent strategy to optimize your investment and work towards your financial objectives. Lower expenses translate to higher returns, which ultimately benefits you as an investor.

How are Returns Calculated on Lower Expense Ratio Mutual Funds?

When it comes to evaluating the performance of mutual funds, understanding how returns are calculated on funds with lower expense ratios is essential. Lower expense ratio mutual funds operate with cost-efficiency in mind, and this can have a direct impact on the returns you earn. Here’s a breakdown of how returns are calculated on these funds:

• Net Asset Value (NAV): Returns on mutual funds, including those with lower expense ratios, are primarily based on the Net Asset Value (NAV). NAV is the per-share market value of the fund’s assets minus its liabilities. The lower expense ratio allows a higher percentage of the fund’s assets to be reflected in the NAV, resulting in a better return for investors.
• Reduced Costs: Lower expense ratio funds incur fewer management and operational costs. This means more of the fund’s earnings stay within the fund, contributing to an enhanced return for investors. Lower costs can make a significant difference over time, especially when compared to funds with higher expense ratios.
• Compound Effect: Over the long term, even a slightly lower expense ratio can lead to a substantial difference in your returns due to the power of compounding. When fund expenses are minimized, the potential for your investments to grow is maximized, helping you achieve your financial goals faster.
• Investor Benefits: Lower expense ratio mutual funds are designed to put more money in the pockets of investors. These funds aim to provide a cost-effective way to participate in the financial markets while preserving your hard-earned money.

Taxation on Lowest Expense Ratio Mutual Funds 

Mutual funds with lower expense ratios are subject to taxation based on their underlying securities. If the equity component predominates, they are taxed like equity funds; if debt dominates, debt fund tax rules apply. Here are the key points:

1. Holding equity fund units for less than 12 months incurs short-term capital gains (STCG) taxed at 15% plus 4% cess.
2. Holding equity funds for more than 12 months qualifies as long-term capital gains (LTCG), taxed at 10% plus 4% cess. LTCGs up to ₹1 lakh are tax-free.
3. Debt funds require a 36-month holding period for STCG, taxed as per the investor’s income tax slab.
4. Holding debt fund investments for over 36 months results in LTCGs taxed at 20% with indexation.
5. ELSS investors enjoy tax benefits under Section 80C, saving up to ₹46,800 in taxes with a maximum deduction of ₹1.5 lakh per financial year.

Risks of Lowest Expense Ratio Mutual Funds

While lowest expense ratio mutual funds are attractive for their cost-efficiency, it’s important to be aware of the potential risks associated with them. Here are some key considerations:

Performance Variability: Lower expense ratio funds may not always outperform higher-cost alternatives. Some low-cost funds may not provide the same level of expertise or resources for managing investments, which can impact returns.

1. Limited Investment Options: Funds with ultra-low expense ratios may have limited investment choices. Investors looking for specialized or actively managed funds may find their options restricted within the low-cost category.
2. Tracking Error: Lowest expense ratio Index funds with extremely low expense ratios may experience tracking error, meaning they may not perfectly replicate the performance of their benchmark index. This can result in a slight variance in returns.
3. Underlying Holdings: To maintain low costs, some funds may compromise on the quality or diversification of their underlying holdings. This can expose investors to higher risk, especially during market downturns.

4. Lack of Active Management: While passive index funds offer lower expenses, they lack active management that can adapt to changing market conditions. In volatile markets, a lack of active decision-making may limit risk mitigation.
5. Not Suitable for All Investors: Low-cost funds may not be suitable for all investors. Those seeking tailored strategies, risk management, or specific investment objectives may not find their needs met by low expense ratio funds.

Benefits of Investing in Mutual Funds With the Lowest Expense Ratio

1. Enhanced Returns: Low expense ratio mutual funds offer the potential for superior returns as a larger portion of the earnings is retained by investors.
2. Cost Efficiency: With reduced operating fees, a greater share of the investment’s gains is deposited into your bank account, maximizing cost efficiency.
3. Faster Wealth Accumulation: Low expense ratios facilitate quicker wealth accumulation, helping investors achieve their financial goals within their desired timeframe.

Investing in mutual fund with low expense ratio can be a strategic move to optimize returns and accelerate the path to your financial objectives.

To Wrap It Up…

As mentioned earlier, the expense ratio is a critical factor for investors when selecting a mutual fund. To aid investors, we’ve listed the top ten low-expense-ratio mutual funds for 2024. However, thorough market research is essential for choosing such funds. Thus, measure your investment goals and risk appetite before investing!

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