Is the expense ratio of international equity funds high?


To ensure that your mutual fund investments are performing as per your expectations, investors need to evaluate the scheme’s performance every 3 to 6 months. Keeping a track on your investments gives investors a clear perspective on whether the fund still holds the potential to help them with their investment objective. The fund manager plays a vital role in buying / selling securities on behalf of its investors to help the scheme its investors achieve a common investment objective. While doing a periodic check on the scheme’s performance, investors should also ensure that the expense ratio of that particular scheme is reasonable. The expense ratio of a mutual fund keeps changing from time to time and hence it is essential for investors to ensure that they are not getting charged exorbitantly.

To run and manage a mutual fund scheme, there are several operational costs and well as management costs that need to be taken care of by the AMC. Such costs are usually recovered by the fund through expense ratio which it levies on retail investors. Every mutual fund scheme has an expense ratio which the investor has to pay as long as he / she owns units in that particular scheme. The expense ratio of a company is evaluated by dividing a mutual fund scheme’s operational costs by the average rupee value of all the assets in the fund.

What are international funds?

International equity mutual funds have found their audience in young investors who want to invest in international securities and foreign economies. There are two types of international funds – those that directly invest in foreign securities and FOFs that invest in international equity funds which invest in global economies. These days investors want to invest in companies whose services they avail on a regular basis. They want to invest in global giants like Google, Facebook, Microsoft etc. Since they are giving business to these companies by using their products and services regularly, investors want to earn capital appreciation by investing in global economies like the USA, UK, Japan, etc.

By investing in global funds investors can even target their life’s long term goals like retirement planning, buying a bigger house, securing their child’s financial future or any other long term goal that requires a wealth creation plan. Thank to the introduction of an investment tool like SIP, investors can even invest small fixed amounts at regular intervals and continue investing till their investment objective is achieved. Thanks to SIP calculator, investors can now determine the amount they to invest periodically in international funds to create wealth.

Is the expense ratio of international funds high?

The expense ratio of a mutual fund scheme might differently depend on whether it is an actively managed fund or passively managed fund. Passively managed funds are generally index funds and ETFs where the scheme mimics the performance of its underlying index to achieve its investment objective. However, in case of actively managed funds the manager is responsible for investing and selling securities to help the scheme perform. This is why the expense ratio of actively managed fund is lesser always higher than that of passively managed funds. Investors investing in international funds should ensure that the expense ratio of the scheme doesn’t cross 1.5%. An ideal expense ratio for equity schemes is anywhere between 0.75% to 1.5% because anything higher than that is considered exorbitant. However, apart from evaluating expense ratios, investors must also evaluate a scheme based on its diversification of portfolio, past performance, risk profile and current market performance before investing.