Have you ever wondered how the total expense ratio (TER) of a mutual fund is calculated? Or what the constituents of the TER are? The most authentic publically available source for understanding the TER is the annual report released by AMC.
Yesterday, Franklin Templeton announced to its investors that the abridged annual report for 2015-2016 was available for download. While some AMCs release category-wise annual reports, Franklin has a separate file for each fund.
So I got hold of the report for Franklin India Smaller Companies Fund. This fund has always shown a significant difference between direct plan and regular plan returns. For example see: Returns Comparison 2016: Direct Mutual Fund vs. Regular Mutual Fund or the one made in 2015: Direct Mutual Fund Option: The Second Anniversary Report.
The following images are adapted from the annual report of the fund (page 5).
Usually, AAuM refers to the (monthly) average assets under management. It is however not clear what the average here is. The AAuM mentioned in (2) above is the regular plan + direct plan AuM in both dividend and growth plans.
However, the AAuM mentioned in (4 a,b) is the total AUM in either regular plan or direct plan.
The constituents of the total expense ratio are given below. This is for regular and direct combined.
Item 2.6 – commissions should be absent in the direct plan.
The regular plan expense ratio of 2.40% matches with the March 2016 fund factsheet. For the direct plan, the fact sheet says it is 1.28% as against 0.92% in the annual report. There are also discrepancies between closing AAuM in the report and that found at AMFI and the factsheet. For now, I will put this down to my own lack of understanding of the manner of reporting.
I have used the monthly AAuM reported at AMFI to understand the breakup of the total expense ratio.
There is a discrepancy as expected between the reported and calculated values of the TER. This is due to the difference in AUM or the way in which they are reported. There is nothing alarming about it and I do not wish to read too much into an approximate estimate.
The idea behind this post is to understand what the constituents of the TER are and their weights. Notice how the management fee is much higher in the case of direct plan due to the lack of commissions.
I wish I could get my hands on a set of data that can be consistently accounted for. Guess that will have to wait for now.
In other news: Check out the four free freefincal ebooks and the site map for navigating all parts of the blog.
How to profit from content writing: is our new ebook for those interested in getting side income via content writing. It is at available at a 50% discount for Rs. 500 only!
Use our Robo-advisory Excel Template for a start-to-finish financial plan!
Join our courses in exclusive Facebook Groups!
- 520+ members are now part of our new course: How to get people to pay for your skills! (watch 1st lecture for free). Learn how to get people to pay for your skills! Whether you are a professional or small business owner who wants more clients via online visibility or a salaried person wanting a side income or passive income, we will show how to achieve by showcasing your skills and building a community that trusts you and pays you!
- Goal-based portfolio management! Join 2125+ members and get clarity on how to plan for your goals and achieve the necessary corpus no matter what the market condition is!! Watch the first lecture for free! One-time payment of Rs. 3000 only. No recurring fees! Life-long access to videos (10+ hours content) in an exclusive Facebook Group! Reduce fear, uncertainty and doubt while investing! Learn how to plan for your goals before and after retirement with confidence.
Want to check if the market is overvalued or undervalued? Use our market valuation tool (will work with any index!) or you buy the new Tactical Buy/Sell timing tool!
We publish mutual fund screeners and momentum, low volatility stock screeners .every month.
About the Author

About freefincal & its content policy Freefincal is a News Media Organization dedicated to providing original analysis, reports, reviews and insights on developments in mutual funds, stocks, investing, retirement and personal finance. We do so without conflict of interest and bias. Follow us on Google News. Freefincal serves more than one million readers a year (2.5 million page views) with articles based only on factual information and detailed analysis by its authors. All statements made will be verified from credible and knowledgeable sources before publication. Freefincal does not publish any paid articles, promotions, PR, satire or opinions without data. All opinions presented will only be inferences backed by verifiable, reproducible evidence/data. Contact information: letters {at} freefincal {dot} com (sponsored posts or paid collaborations will not be entertained)
Connect with us on social media
- Twitter @freefincal
- Subscribe to our Youtube Videos
- Posts feed via Feedburner.
Our publications
You Can Be Rich Too with Goal-Based Investing

Gamechanger: Forget Startups, Join Corporate & Still Live the Rich Life You Want

Your Ultimate Guide to Travel

Free android apps
- All calculators from our book, “You can be Rich Too” are now available on Google Play!
- Install the Financial Freedom App! (Google Play Store)
- Install Freefincal Retirement Planner App! (Google Play Store)
- Find out if you have enough to say "goodbye" to your employer (Google Play Store)