Your 15% CAGR Fund Gives You 11.8% After Expense Ratio + LTCG
Expense ratios, exit loads, and LTCG tax silently eat your mutual fund returns. We calculate the net investor return.
₹10K SIP in a large-cap fund, 10 years
₹4.4L less on ₹12L invested
Expense ratio: the daily deduction you never see
The expense ratio is deducted daily from your fund's NAV. A 1.5% expense ratio on a ₹10L portfolio costs ₹15,000/year — but you never get a bill. It's invisibly deducted from your returns. Over 10 years, compound effect of 1.5% expense ratio on ₹10K monthly SIP: ₹2.8L lost. Direct plans charge 0.5–1.0% less — that difference alone is worth ₹1.2–2L over 10 years.
LTCG tax: the exit toll
Equity LTCG above ₹1.25L gains is taxed at 12.5% (no indexation). On a ₹12L investment that grows to ₹27.9L, gains are ₹15.9L. Tax: ₹1.83L. Effective post-tax return drops from 15% to ~12.5%. For SIPs, the calculation is more complex because each SIP installment has its own purchase date and holding period. Use XIRR, not CAGR, for accurate SIP return measurement.
Exit load: the early withdrawal penalty
Most equity funds charge 1% exit load for redemptions within 1 year. On ₹5L redeemed, that's ₹5,000. Some funds have graded exit loads (1% in 6 months, 0.5% in 12 months). ELSS has mandatory 3-year lock-in with zero exit load after. Liquid funds and overnight funds typically have zero exit load.
What to do
1. **Always use direct plans** — save 0.5–1.5% in expense ratio annually. Use Groww, Kuvera, or AMC websites.\n\n2. **Hold for 1+ years** to avoid exit load.\n\n3. **Harvest LTCG annually** — redeem and reinvest up to ₹1.25L gains each year to use the tax-free limit.\n\n4. **Compare funds on post-expense return, not pre-expense** — check 'direct plan' returns on ValueResearch or Morningstar.