Your mutual fund's manager handles your money. Do you think she/he does that for free? Of course, no! For their service, they charge a small fee, which depends on the percentage of the investment. This “charge” by the manager is what we call Total Expense Ratio or TER. And it is decided or set by the official regulator of the mutual funds, which is SEBI in India.
Recently, the Security and Exchange Board of India (SEBI) has made some changes in Total Expense Ratio, reducing it for differently sized funds. This reduction ranges anywhere between 0.01 percent and 0.44 percent.
This change in total expense ratio will mean higher returns for the retail investors. For instance, say you have invested Rs 900 in a fund and have realized Rs 100 as gross profit. Out of that, you paid 1.5 TER to your fund manager. At the time of redeeming, you would get a return of Rs. 985. Now, say the TER has been reduced to 1.3, now you would get Rs. 987. (A gain of Rs 2!)
Of course, this example is very hypothetical. And in the middle, you usually consume many small expenses. But yeah, that’s the basic calculation. The new Total expense ratio would enable you higher gains. The more money you have invested in the MF, the higher will be the gains. All in all, a decent early Diwali gift by SEBI for all the investors.