Best Low Expense Ratio Mutual Funds in India for 2025
Two investors put the same amount of capital into mutual funds, but one ends up with higher returns than the other. Why? While there are multiple reasons this occurs, a high expense ratio can be one of the main factors that can eat into their earnings over time. Expense ratio is the annual maintenance charges levied by mutual funds to cover expenses like operational costs, management fees, advertising costs, etc. This factor can have a crucial impact on the returns you would receive from a mutual fund. Thus, in this blog, we will delve into what are the best lower expense ratio mutual funds, how to identify them, their benefits, risks, and how you can invest in them.
Best Lower Expense Ratio Mutual Funds
| Fund Name | Sub Category | AUM (Rs. in cr) | CAGR 3Y (%) | Expense Ratio (in %) |
|---|---|---|---|---|
| HDFC Asset Allocator FoF | Flexi Cap Fund | 3,460.93 | 15.65 | 0.1 |
| ITI Mid Cap Fund | Mid Cap Fund | 1,095.38 | 22.84 | 0.11 |
| Kotak Nifty Next 50 Index Fund | Index Fund | 423.16 | 14.82 | 0.11 |
| Navi Nifty Next 50 Index Fund | Index Fund | 697.58 | 14.70 | 0.12 |
| ITI Multi-Cap Fund | Multi Cap Fund | 1,312.94 | 18.11 | 0.18 |
| Motilal Oswal Nifty 500 Index Fund | Index Fund | 2,039.81 | 13.44 | 0.2 |
| Edelweiss NIFTY Large Mid Cap 250 Index Fund | Index Fund | 233.30 | 16.06 | 0.22 |
| HDFC Dynamic PE Ratio FOF | Flexi Cap Fund | 48.24 | 14.05 | 0.23 |
| Axis Nifty Next 50 Index Fund | Index Fund | 290.46 | 14.56 | 0.25 |
| Nippon India Nifty 50 Value 20 Index Fund | Index Fund | 923.75 | 13.43 | 0.25 |
Disclaimer: Please note that the above table is for educational purposes only, and is not recommendatory. Please do your own research or consult your financial advisor before investing. The data is derived from Tickertape Stock Screener and is subject to real-time updates.
Note: The list of top mutual funds with lowest expense is derived from Tickertape Mutual Fund Screener and the data is from 5th March 2025. These funds were chosen according to the following criteria:
- Plan: Growth
- Category: Equity
- CAGR 3Y: High
- Expense Ratio: Sorted from Lowest to Highest
🚀 Pro Tip: You can use Tickertape’s Mutual Fund Screener to research and evaluate funds with over 50+ pre-loaded filters and parameters.
Overview of the Top Lower Expense Ratio Mutual Funds
Here are brief overviews of the best performing mutual funds with low expense ratios on the mutual fund expense ratio list above:
HDFC Asset Allocator FoF
This fund aims for capital appreciation by dynamically managing asset allocation across equity-oriented, debt-oriented, and gold ETFs. It provides a balanced investment approach by shifting allocations based on market conditions.
ITI Mid Cap Fund
Focused on mid-cap stocks, this fund seeks long-term capital appreciation by predominantly investing in equity and equity-related securities of mid-sized companies.
Kotak Nifty Next 50 Index Fund
Designed to replicate the composition of the Nifty Next 50 Index, this fund aims to generate returns in line with the index while accounting for tracking errors. It provides exposure to companies that have the potential to become future Nifty 50 constituents.
Navi Nifty Next 50 Index Fund
Similar to the Kotak Nifty Next 50 Index Fund, this scheme invests in companies that form the Nifty Next 50 Index and endeavors to closely track its returns.
ITI Multi-Cap Fund
With a diversified investment approach, this fund targets long-term capital appreciation by investing across various market capitalisations. It provides exposure to large, mid, and small-cap stocks, offering a balanced mix of growth and stability.
What is the Lowest Expense Ratio in Mutual Funds?
The expense ratio refers to the fee charged managed by a fund. Under SEBI (Mutual Funds) Regulations, 1996, mutual funds can charge operating expenses as a percentage of daily net assets. These expenses include sales and marketing, administrative, transaction costs, investment management fees, registrar fees, custodian fees, and audit fees. Thus, this collective expense is referred to as the Total Expense Ratio (TER).
The expense ratio varies based on the type of fund. For instance, equity mutual funds in India tend to have higher expense ratios than debt funds. Further, in terms of the nature of the fund, actively managed funds usually come with higher costs than passively managed funds. A good or ideal expense ratio falls within the range of 0.5% to 0.75% for an actively managed mutual fund.
How Do Mutual Funds with Lower Expense Ratio Work?
The lowest expense ratio mutual funds in India, often favoured by savvy investors, operate on a principle of efficiency and cost-effectiveness. Many low-cost mutual funds India employ passive management strategies, which follow an index or benchmark, often resulting in cheaper fees compared to actively managed low cost index funds in India. Therefore, reduced expenses can contribute to enhanced long-term returns.
How to Invest in Lowest Expense Ratio Mutual Funds?
Investing in the best mutual funds in India with a less expense ratio can be a strategic financial move, as it can help you keep more of your returns.
- You can start by researching mutual funds with less expense ratio by using online tools like Tickertape Mutual Fund Screener.
- Once you have selected the funds based on different metrics and parameters, go to smallcase.com or the smallcase app, and login via your phone number.
- Click on ‘Discover‘ and enter the name of the specific mutual fund name in the search bar and hit enter. You can click on ‘invest now’ and select whether you want to invest a lump sum amount or start a SIP and start investing!
If you’re uncertain about which lower expense ratio mutual funds to invest in, you can consider consulting a financial advisor who can provide personalised guidance based on your financial situation and goals.
However, if you’re confused about which stocks to pick, you can explore smallcases:
- smallcases are readymade portfolios of stocks/ETFs, that are based on a theme idea or strategy
- They’re created and managed by SEBI-registered experts
- smallcase.com offers over 500+ stock portfolios, created by 180+ managers
- Some of the popular smallcases among new investors are as follows:
Disclosures for aforementioned smallcases
Benefits of Investing in Mutual Funds With the Lowest Expense Ratio
A higher expense ratio reduces your overall gains, making it essential to choose funds with the lowest expense ratios whenever possible. Here’s why:
1. Higher Net Returns: Best funds with lower expense ratios allow investors to retain a larger share of their earnings. Since the fees deducted are minimal, a greater portion of the fund’s growth contributes to wealth accumulation over time.
2. Better Compounding Benefits: The power of compounding works best when costs are minimised. By choosing a low-cost mutual fund, investors can maximise their reinvested earnings, leading to greater long-term growth.
3. Reduced Cost Burden: A high expense ratio can significantly erode returns, especially in actively managed funds. Low-cost mutual funds ensure that the fees paid for fund management do not outweigh the benefits of professional expertise.
How to Choose Mutual Funds with Lowest Expense Ratio?
With Tickertape MF Screener, you can sort the list of top funds with the lowest expense ratio in no time.
- First, add an ‘Expense Ratio’ filter to the list and sort it from low to high. Apart from this, you can add over 50+ filters based on your preferred criteria to get a list according to your preferred criteria and goals.
- Once you’ve shortlisted the top funds from the screener results, you can learn more about their performance, returns, peers, and others metrics by heading to the individual Mutual Fund Pages on Tickertape.
- Additionally, you can also monitor your investment portfolio and get real-time updates about the same.
Who Should Explore Lowest Expense Ratio Mutual Funds?
Investors seeking to maximise their returns may benefit by choosing mutual funds with the lowest expense ratios, including long term investment mutual funds. By opting for the best mutual funds in India with lower expense fees, investors can minimise the amount deducted from their investment, allowing more of their capital to grow over time.
Warren Buffett on Expense Ratio
In his renowned 2016 letter to the shareholders, Warren Buffett praised John Bogle, the founder of Vanguard Funds, for demonstrating that managing expense ratios can lead to massive wealth creation.
Vanguard is known for its passive investment strategy and avoids stock selection based on the belief that beating the market and selecting outperforming funds are exceedingly difficult tasks. Instead, Vanguard focuses on investing in strong indices that offer reliable equity returns at low risk and minimal costs. Low expense ratio index funds, which Vanguard prefers, operate without active management, thereby reducing expenses. According to a study, Vanguard’s low-cost index funds have saved investors over $600 billion since the company’s inception. This significant savings directly benefits investors’ long-term wealth accumulation.
Types of Costs Involved in Buying or Selling of Mutual Funds
TER cannot be a standalone factor when you are selecting a fund for investment. Here is a list of additional costs that you might want to consider:
- Exit Load: Exiting before a set period triggers an exit load, typically 6 months for debt and 1 year for equity funds. Exit loads ensure that the burden of exiting investors doesn’t fall on existing ones.
- Securities Transaction Tax (STT): STT is levied on equity funds and not on debt funds. Upon redemption of equity funds, STT is paid on the sale amount.
- Taxes on Equity mutual funds:
– Short-Term Capital Gains (STCG): The mutual funds held for less than a year are known as STCG. These gains are taxed at 20%.
– Long-Term Capital Gains (LTCG): The mutual funds held for over a year are known as LTCG. If the gains are below Rs. 1.25 lakh, they are tax-free. If the gains are above Rs. 1.25 lakh, the gains will be taxed at 12.5% without any indexation benefit.
Taxation on Lowest Expense Ratio Mutual Funds
Equity Mutual Funds
- Tax-Free Limit: The capital gains up to Rs. 1.25 lakh per year are tax-free. This is an increase from the previous limit of Rs. 1 lakh.
- Tax Rate: The gains exceeding Rs. 1.25 lakh are now taxed at a flat rate of 12.5%. This is an increase from the previous rate of 10%.
- Indexation: The benefit of indexation, which allowed investors to adjust the purchase price for inflation, has been removed for all asset classes, including equity mutual funds.
| Capital Gains Tax | Holding Period | Old Rate | New Rate |
| Short-Term Capital Gains (STCG) | Less than 12 months | 15% | 20% |
| Long-Term Capital Gains (LTCG) | More than 12 months | 10% | 12.50% |
Debt Mutual Funds
| Capital Gains Tax | Holding Period | Old Rate | New Rate |
| Short-Term Capital Gains (STCG) | Less than 36 months | Taxed according to your income tax slab | Taxed according to your income tax slab |
| Long-Term Capital Gains (LTCG) | More than 36 months | 10% | 12.50% |
- No Indexation Benefit: The previous benefit of adjusting the purchase price for inflation is removed. Now, the entire gain after three years is taxable at 12.5%.
- Change in Holding Period for Specified Mutual Funds: Previously, debt mutual funds, including long duration funds, with a holding period of over 36 months were taxed based on the investor’s tax slab, classified as Long-Term Capital Gains (LTCG). Now, for specified mutual funds where over 65% of the investment is in debt, the holding period for taxation has been reduced to over 24 months. These funds will still be taxed according to the investor’s tax slab as either LTCG or STCG.
Hybrid Mutual Funds
| Type of Hybrid Fund | Short-Term Capital Gains (STCG) | Long-Term Capital Gains (LTCG) | Indexation Benefit |
| Equity-Oriented Hybrid Funds | 20% for holdings less than 1 year | 12.5% for holdings over 1 year, with gains up to Rs. 1.25 lakh tax-free | Not available |
| Debt-Oriented Hybrid Funds | Taxed as per income tax slab for holdings less than 3 years | 12.5% for holdings over 3 years | Not available |
Note: Mutual fund schemes where neither the equity nor debt orientation exceeds 65% will now be classified as long-term investments after 24 months. The previous holding period for these funds was 36 months. These will be taxed at the revised LTCG tax rate of 12.5%.
Risks of Investing in 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:
- Concentration Risk: Some of the lowest expense ratio funds, including the index fund with lowest expense ratios, may have a concentrated portfolio. Investing heavily in a few sectors or stocks can increase the risk if those investments underperform.
- Lack of Active Management: Some of the top funds with the lowest expense ratios are often passively managed. While this reduces costs, it also means there may not be any active stock selection or market timing by a fund manager. This can be a risk if the market or index underperforms, even for the top mutual funds in India.
- Tracking Error: Tracking error explains the deviation of the scheme’s actual returns with respect to its benchmark. Although these tracking errors can be small, they can adversely affect your returns. As a result, a slight change in returns can impact your investment corpus.
To Wrap It Up…
When it comes to investing in mutual funds, the expense ratio is a critical factor that can significantly impact long-term returns. While the expense ratio is undoubtedly an important metric, investors should also consider factors such as the fund’s track record, investment strategy, level of diversification, and how well it aligns with their overall financial objectives and risk appetite. However, it is advisable to do thorough market research on your own and/or consult a financial advisor before investing.
Frequently Asked Questions (FAQs) on Low Expense Ratio Mutual Funds
Here are the top 5 mutual funds in India with low expense ratio:
– HDFC Asset Allocator FoF
– ITI Mid Cap Fund
– Kotak Nifty Next 50 Index Fund
– Navi Nifty Next 50 Index Fund
– ITI Multi-Cap Fund
Note: This information is intended for educational purposes and should not be construed as a recommendation or advice.
Yes, there are additional charges levied by a fund house. This includes exit load, security transaction cost, and advisory charges.
Index funds and ETFs that are passively managed, generally have a low expense ratio. This is because there is no additional research required. This reduces operational costs and allows more of the fund’s earnings to be retained and reinvested, resulting in lower fees for investors.
Yes, the expense ratio can change over time. Factors like changes in management, fund asset size, and regulatory guidelines can lead to adjustments. So, it’s a good idea to keep an eye on these changes to ensure you’re updated about your investments.
Yes, the expense ratio impacts the NAV. Each day, the reported NAV is adjusted to account for the fund’s expenses, which are deducted from the fund’s assets on a daily basis. This means that the NAV is decreased to reflect the impact of these expenses. It should be noted that by doing it this way, investors only pay for the costs associated with investing in the fund for the period they are actually invested.
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