Does your investment get whithered away?

Expenses take away a lot of money out of your investments. This particularly affects the rate of return of your debt funds because they normally earn less compared to their equity counterparts. Look at the table below:

Beginning	Invested (Rs)	Year End	Earning (Rs)	Yr.End (Rs)	Expense Ratio Year End	Expenses (Rs)
1	10,000	10%	1000	11,000	1%	110
2	10,890	9%	980.1	11,870	1%	118.701
3	11,751	12%	1410.168	13,162	1%	131.6157
4	13,030	-1%	-130.3	12,900	1%	128.9965

The 4 year ended investment gave you 6.3% pa and not 27.7% as you may be tempted to believe. The expense ratio applies irrespective of the kind of growth achieved.
Beginning Net Investment (Rs) Simple Rate of Return GM 1 10,890 1.089 NA 2 11,751 1.17514 1.084039 3 13,030 1.302995 1.09223 4 12,771 1.277066 1.063049

You will get a clear idea on this as you follow this link


Even if the market give a negative rate of return, the fund or PMS manager will charge you the expenses as per law. So eventually you may have corpus diluted if the fund is not doing well.


Periodic review of the fund performance is as important as periodic review of external conditions affecting the investments.



Recently SEBI modified the rules of applying expenses. The change in valuation norms for short term debt will also add to volatility.