What's the lifetime cost of choosing a fund with 1% higher TER for a 30-year horizon?
Scenario
₹10,000 monthly SIP for 30 years at 12% gross return. Compare two funds: 0.25% TER and 1.25% TER (typical direct plan index vs direct plan active large-cap).
Inputs
- Low ter %
- 0.25
- High ter %
- 1.25
- Horizon years
- 30
- Monthly sip INR
- 10000
- Gross return %
- 12
Calculation
- 1.
Low TER net CAGR
12% − 0.25% → 11.75% CAGR
- 2.
Low TER 30-year corpus
₹10K × SIP-FV factor at 11.75%, 30 yrs → ₹3.10 Cr
- 3.
High TER net CAGR
12% − 1.25% → 10.75% CAGR
- 4.
High TER 30-year corpus
₹10K × SIP-FV factor at 10.75%, 30 yrs → ₹2.48 Cr
- 5.
TER drag cost over 30 years
₹3.10 Cr − ₹2.48 Cr → ₹62.00 L
Conclusion
₹62 lakh avoidable loss over 30 years from a 1% TER gap on the same fund (assuming identical gross returns). The TER is the most controllable variable in your long-run outcome — and the one most retail investors underestimate because it's deducted daily from NAV without an explicit bill.
Tradeoffs
In reality, higher-TER active funds rarely match index gross returns — they typically underperform by 0.5-1% gross AS WELL, making the actual cost gap larger than the pure TER differential. The 1% TER comparison above is the FLOOR of the cost — actual real-world outcomes are worse for typical active funds.