How much does a 1% TER difference cost over 25 years on a ₹10,000 SIP?
Scenario
Compare a ₹10,000 monthly SIP for 25 years at 12% gross nominal return, in direct plan (0.20% TER) vs regular plan (1.50% TER) of the same underlying fund
Inputs
- Horizon years
- 25
- Direct ter %
- 0.2
- Monthly sip INR
- 10000
- Regular ter %
- 1.5
- Gross return %
- 12
Calculation
- 1.
Direct plan net return
12% − 0.20% → 11.8% CAGR
- 2.
Direct plan terminal corpus (₹10K × SIP-FV factor at 11.80%, 25 yrs)
₹10K × 1842 → ₹1.84 Cr
- 3.
Regular plan net return
12% − 1.50% → 10.5% CAGR
- 4.
Regular plan terminal corpus (₹10K × SIP-FV factor at 10.50%, 25 yrs)
₹10K × 1452 → ₹1.45 Cr
- 5.
Avoidable loss from choosing regular plan
₹1.84 Cr − ₹1.45 Cr → ₹39.00 L
Conclusion
₹39 lakh of avoidable loss in terminal wealth from choosing the regular-plan variant of the same fund over 25 years. The 'cost' goes to the distributor as embedded commission, not to better fund management.
Tradeoffs
For investors who legitimately rely on a SEBI-registered investment adviser (RIA) for ongoing guidance, paying the RIA a separate flat fee + using direct plans is cheaper than commission-embedded regular plans except at very small portfolio sizes.