Best Low Expense Ratio Mutual Funds in India

Best Mutual Funds with Low Expense Ratio

A fund returning 12% annually sounds impressive. But what if 1.5% of that goes to the fund house as fees? You are left with 10.5%.

Over 20 years, that 1.5% difference between a high and low expense ratio fund can cost you over ₹15 lakh on a ₹10 lakh investment. Not a typo. Fifteen lakhs.

This is why expense ratio matters, and why smart NRIs are increasingly choosing low-cost funds to maximize returns.

At Belong, we have seen many NRIs unknowingly lose lakhs to high expense funds sold through banks and relationship managers. This guide shows you exactly which funds charge less and how much you can save by switching.

What is Expense Ratio in Mutual Funds?

The expense ratio is the annual fee a mutual fund charges you for managing your money. It covers fund manager salaries, research costs, administrative expenses, marketing, and distributor commissions.

How it works:

If you invest ₹1 lakh in a fund with 1.5% expense ratio, you pay ₹1,500 per year. This is not charged separately. Instead, it is deducted daily from the fund's NAV (Net Asset Value).

When you see a fund's returns, they are already adjusted for expense ratio. A fund showing 15% returns with 1.5% expense ratio actually generated 16.5% but kept 1.5% for itself.

👉 Tip: Always compare returns after expense ratio is deducted. Two funds with similar gross returns can have very different net returns based on expenses.

Why Expense Ratio Matters More Than You Think

Let us do the math with a real example.

Scenario: You invest ₹10 lakh for 20 years. Both funds generate 12% annual returns before expenses.

Expense Ratio	Net Annual Return	Value After 20 Years	Difference
0.5% (Low)	11.5%	₹89.5 lakh	-
1.5% (High)	10.5%	₹73.7 lakh	-₹15.8 lakh

The fund with 1% higher expense ratio costs you ₹15.8 lakh over 20 years. That is almost 16% of your final corpus, lost to fees.

Now imagine you are investing ₹50 lakh or ₹1 crore. The numbers become staggering.

A December 2025 research study published in Research Square found that direct plans consistently outperformed regular plans by approximately 1% per year without taking any additional risk. Over 10 years in small-cap funds, direct plans averaged 19.97% CAGR versus 18.48% for regular plans.

Direct Plans vs Regular Plans: The 1% Difference

Before we look at specific funds, understand this critical distinction.

Every mutual fund scheme has two versions:

Direct Plan: You invest directly with the AMC (Asset Management Company). No distributor commission. Lower expense ratio.

Regular Plan: You invest through a bank, advisor, or distributor who earns commission. Higher expense ratio (typically 0.5-1.5% more than direct).

Feature	Direct Plan	Regular Plan
Expense ratio	Lower (by 0.5-1.5%)	Higher
Commission to distributor	None	Included in expense
Available through	AMC website, direct platforms	Banks, advisors, distributors
Advice included	No	Sometimes
Best for	DIY investors, cost-conscious	Those needing guidance

Real example from December 2025:

Fund	Direct Plan Expense	Regular Plan Expense	Difference
Parag Parikh Flexi Cap	0.63%	1.63%	1.00%
HDFC Mid Cap Opportunities	0.71%	1.63%	0.92%
SBI Small Cap	0.72%	1.69%	0.97%

Source: AMFI India, December 2025

👉 Tip: Always invest in Direct plans unless you specifically need advisory services. The 1% you save compounds significantly over time. Use Belong's comparison tools to compare investment options.

SEBI's New Expense Ratio Rules (December 2025)

On December 17, 2025, SEBI approved a major overhaul of mutual fund expense rules. Key changes effective April 2026:

What changed:

Total Expense Ratio (TER) is now split into Base Expense Ratio (BER) and statutory levies
Statutory costs (GST, stamp duty, SEBI fees) will be shown separately
Index fund and ETF expense cap reduced from 1.0% to 0.9%
Brokerage caps tightened significantly

Why this matters for NRIs:

You will now see clearer breakdowns of what you pay the fund manager versus what goes to government levies. This improves transparency and makes comparison easier.

Best Low Expense Ratio Mutual Funds by Category

Index Funds: The Lowest Cost Option

Index funds simply track an index like Nifty 50 or Sensex without active stock picking. No expensive research team, no high-paid fund managers making bets. Just mirror the index.

Result? The lowest expense ratios in the industry, often below 0.2%.

Fund Name	Index Tracked	Expense Ratio	5-Year CAGR	Min. Investment
UTI Nifty 50 Index Fund	Nifty 50	0.18%	16.2%	₹500
HDFC Index Fund Nifty 50	Nifty 50	0.20%	16.1%	₹100
Navi Nifty 50 Index Fund	Nifty 50	0.12%	16.0%	₹10
Kotak Nifty Next 50 Index	Nifty Next 50	0.10%	16.4%	₹100
Motilal Oswal Nifty Bank Index	Bank Nifty	0.30%	14.4%	₹500

Data as of December 2025. Source: Scripbox, INDmoney

Why Nifty 50 Index Funds work for NRIs:

When you cannot actively monitor investments from abroad, index funds remove fund manager risk. You are betting on India's top 50 companies, not on whether a particular fund manager makes good decisions.

Limitation: Index funds cannot outperform the market. During bull runs, actively managed funds may deliver higher returns. But they also underperform during downturns.

👉 Tip: Index funds are ideal for the core of your portfolio (60-70%). Add actively managed funds for potential alpha generation with the remaining allocation.

Low-Cost Flexi Cap Funds

Flexi cap funds invest across large, mid, and small cap stocks. Among actively managed funds, these offer some of the best expense ratios.

Fund Name	Expense Ratio	5-Year CAGR	3-Year CAGR	AUM (₹ Cr)
Edelweiss Flexi Cap Fund	0.40%	22.6%	19.6%	2,842
JM Flexicap Fund	0.50%	25.6%	22.1%	5,990
Bank of India Flexi Cap	0.50%	26.0%	22.8%	2,165
Kotak Flexicap Fund	0.59%	19.3%	16.7%	54,083
Parag Parikh Flexi Cap	0.63%	22.4%	22.5%	1,19,723
Quant Flexi Cap Fund	0.70%	27.3%	16.6%	6,890

Data as of December 2025. Source: Scripbox, Groww

Standout: Edelweiss Flexi Cap Fund

At just 0.40% expense ratio, this fund offers one of the lowest costs among actively managed equity funds while delivering 22.6% 5-year CAGR. It is proof that low cost does not mean low performance.

Parag Parikh Flexi Cap charges slightly more (0.63%) but offers unique international diversification (up to 35% in US stocks like Google, Amazon, Microsoft). For NRIs, this dollar exposure provides natural hedging against rupee depreciation.

Low-Cost Large Cap Funds

Large cap funds invest in India's top 100 companies. They are the most stable equity category and typically have lower expense ratios than mid or small cap funds.

Fund Name	Expense Ratio	5-Year CAGR	3-Year CAGR	AUM (₹ Cr)
Nippon India Large Cap	0.70%	21.4%	20.3%	50,312
ICICI Prudential Bluechip	0.80%	18.8%	17.2%	78,160
Canara Robeco Bluechip	0.44%	16.5%	15.1%	14,892
Edelweiss Large Cap	0.48%	15.8%	14.6%	1,203
Axis Bluechip Fund	0.72%	14.2%	11.8%	35,421

Data as of December 2025. Source: INDmoney, Value Research

Standout: Canara Robeco Bluechip

At 0.44% expense ratio, it is among the cheapest large cap funds while delivering consistent 16.5% 5-year returns. Not the highest returns, but the cost efficiency makes it attractive for conservative investors.

Low-Cost Mid Cap Funds

Mid cap funds carry higher risk but also potential for higher returns. Their expense ratios tend to be higher than large caps due to more intensive research requirements.

Fund Name	Expense Ratio	5-Year CAGR	3-Year CAGR	AUM (₹ Cr)
Kotak Midcap Fund	0.37%	21.5%	21.5%	60,385
Motilal Oswal Midcap Fund	0.62%	30.5%	27.3%	37,501
HDFC Mid Cap Opportunities	0.71%	27.4%	25.7%	89,383
Edelweiss Mid Cap Fund	0.44%	28.1%	27.9%	7,865
Invesco India Mid Cap	0.70%	26.9%	29.1%	6,234

Data as of December 2025. Source: Fincash, Analytics Insight

Standout: Kotak Midcap Fund

At 0.37% expense ratio, it is remarkably cheap for an actively managed mid cap fund. The 21.5% 5-year CAGR is solid, though not the highest. For cost-conscious investors who want mid cap exposure, this is an excellent choice.

Low-Cost Debt and Liquid Funds

For short-term parking or the debt portion of your portfolio, expense ratio matters even more because returns are lower. A 0.5% expense on a 7% return fund takes 7% of your returns.

Fund Name	Expense Ratio	1-Year Return	5-Year CAGR	Category
HDFC Overnight Fund	0.10%	6.0%	5.3%	Overnight
BHARAT Bond FOF 2031	0.10%	8.0%	6.8%	Target Maturity
SBI Liquid Fund	0.19%	7.0%	5.8%	Liquid
HDFC Liquid Fund	0.20%	7.0%	5.8%	Liquid
ICICI Pru Liquid Fund	0.20%	7.1%	5.8%	Liquid

Data as of December 2025. Source: Scripbox

👉 Tip: For emergency funds or short-term goals, liquid funds with sub-0.25% expense ratios are ideal. They offer better returns than savings accounts while maintaining high liquidity.

Expense Ratio by Fund Category: What to Expect

SEBI sets maximum limits, but actual charges vary widely within categories.

Fund Category	SEBI Maximum	Typical Direct Plan Range	What's Considered Low
Overnight/Liquid	1.05%	0.10-0.25%	Below 0.20%
Index Funds/ETFs	0.90%	0.10-0.30%	Below 0.20%
Large Cap	2.25%	0.40-1.00%	Below 0.60%
Flexi Cap	2.25%	0.50-1.20%	Below 0.70%
Mid Cap	2.25%	0.35-1.20%	Below 0.70%
Small Cap	2.25%	0.50-1.30%	Below 0.80%

Source: SEBI Regulations, AMFI

Hidden Costs Beyond Expense Ratio

Expense ratio is not the only cost. Watch for these additional charges:

1. Exit Load

A fee charged if you redeem within a specified period (usually 1 year for equity funds). Typically 1% if exited before 12 months.

2. Securities Transaction Tax (STT)

Charged on equity fund redemptions. Currently 0.001% of sale value. Applied automatically.

3. Stamp Duty

0.005% on purchase of mutual fund units. Applied at transaction level.

4. GST on Expense Ratio

18% GST is charged on the expense ratio itself. If expense ratio is 1%, actual cost is 1.18%.

5. Tracking Error (for Index Funds)

Index funds aim to match their benchmark but always have slight deviation. Lower tracking error means better replication. Check this alongside expense ratio when comparing index funds.

👉 Tip: For a complete cost picture, add exit load (if applicable) and GST to the expense ratio. A fund with 0.50% expense actually costs 0.59% after GST.

How NRIs Can Invest in Low Expense Ratio Funds

Step 1: Choose Direct Plans

The single biggest action to reduce costs is choosing Direct plans over Regular plans. You save 0.5-1.5% annually.

Where to invest in Direct plans:

AMC websites directly (SBI MF, HDFC MF, etc.)
Direct plan platforms (Zerodha Coin, Groww, INDmoney)
GIFT City funds via Belong

Step 2: Complete NRI KYC

You need KYC compliance as an NRI. Documents required:

Passport copy
Overseas address proof
PAN card
NRE or NRO account details
FATCA declaration (especially for US/Canada NRIs)

Step 3: Link Your NRE/NRO Account

Mutual fund investments must be made in Indian Rupees through your NRE or NRO account. Direct plan platforms typically require linking a bank account for auto-debit.

Step 4: Select and Invest

Once KYC is complete:

Log in to your chosen platform
Search for the fund's Direct Growth option
Enter investment amount
Confirm and pay through linked account

👉 Tip: Set up SIP (Systematic Investment Plan) for disciplined investing. Even a ₹5,000 monthly SIP in a low-cost index fund can build significant wealth over time.

FATCA Restrictions for US/Canada NRIs

If you live in the US or Canada, not all low-cost funds are accessible due to FATCA compliance requirements.

AMCs accepting US/Canada NRIs (2025):

AMC	Direct Plan Access	Notes
SBI Mutual Fund	Yes	Full access
UTI Mutual Fund	Yes	Full access
Nippon India	Yes	Full access
Franklin Templeton	Yes	Full access
ICICI Prudential	Limited	Some schemes restricted
Aditya Birla Sun Life	Yes	Full access

Alternative: GIFT City Mutual Funds

For US/Canada NRIs facing FATCA restrictions, GIFT City mutual funds offer a compelling alternative:

No FATCA compliance requirements
Zero capital gains tax for NRIs
USD-denominated options available
Regulated by IFSCA

Explore options like DSP Global Equity Fund or browse the full list on Belong's Mutual Funds Explorer.

Taxation on Mutual Fund Investments for NRIs

Tax implications are same regardless of expense ratio:

Equity Funds (65%+ equity allocation)

Holding Period	Tax Rate	TDS Rate
Less than 12 months (STCG)	20%	20%
More than 12 months (LTCG)	12.5% on gains above ₹1.25 lakh	12.5%

Debt Funds

All gains taxed as per your income tax slab regardless of holding period.

DTAA Benefits

India has Double Taxation Avoidance Agreements with 90+ countries. With a Tax Residency Certificate (TRC), you can either claim lower TDS in India or tax credit in your resident country.

For UAE NRIs, this means 12.5% LTCG is your effective tax since UAE has no income tax.

👉 Tip: Use Belong's NRI Tax Filing service to ensure you claim all DTAA benefits and avoid double taxation.

Building a Low-Cost Portfolio: Sample Allocations

Conservative Portfolio (Expense Target: Below 0.30%)

Fund	Allocation	Expense Ratio	Weighted Expense
UTI Nifty 50 Index Fund	50%	0.18%	0.09%
HDFC Liquid Fund	30%	0.20%	0.06%
BHARAT Bond FOF 2031	20%	0.10%	0.02%
Total	100%	-	0.17%

Best for: NRIs near retirement, ultra-conservative investors, those parking funds temporarily.

Balanced Portfolio (Expense Target: Below 0.50%)

Fund	Allocation	Expense Ratio	Weighted Expense
Kotak Nifty Next 50 Index	30%	0.10%	0.03%
Edelweiss Flexi Cap Fund	30%	0.40%	0.12%
Kotak Midcap Fund	20%	0.37%	0.07%
HDFC Liquid Fund	20%	0.20%	0.04%
Total	100%	-	0.26%

Best for: NRIs aged 35-50 seeking growth with moderate risk.

Growth Portfolio (Expense Target: Below 0.60%)

Fund	Allocation	Expense Ratio	Weighted Expense
Parag Parikh Flexi Cap	35%	0.63%	0.22%
Kotak Midcap Fund	25%	0.37%	0.09%
Nippon India Small Cap	20%	0.68%	0.14%
UTI Nifty 50 Index	20%	0.18%	0.04%
Total	100%	-	0.49%

Best for: NRIs under 40 with 10+ year horizon and high risk tolerance.

Common Mistakes to Avoid

1. Choosing funds based on expense ratio alone

A fund with 0.3% expense ratio but 12% returns is worse than one with 0.8% expense ratio and 18% returns. Look at returns after expenses.

2. Ignoring tracking error in index funds

Two Nifty 50 index funds with same 0.15% expense ratio can have different tracking errors. Lower tracking error = more accurate index replication = better.

3. Staying in Regular plans because of "relationship"

Your bank relationship manager earns commission from Regular plans. That commission comes from your returns. Switching to Direct plans is purely in your interest.

4. Not considering exit loads

Some funds charge 1% exit load if you redeem within 1 year. If you might need money soon, factor this into your cost calculation.

5. Comparing expense ratios across categories

A 0.7% expense ratio is high for a large cap fund but reasonable for a small cap fund. Always compare within the same category.

When Higher Expense Ratio Might Be Worth It

Not all high-expense funds are bad. Sometimes you get what you pay for:

Specialized expertise: Sectoral funds (pharma, IT, infrastructure) or international funds require specialized research that justifies higher costs.

Consistent outperformance: A fund consistently beating its benchmark by 3-4% annually may justify a 0.5% higher expense ratio.

Unique strategies: Funds like Parag Parikh with international allocation or Quant with momentum-based strategies offer differentiated approaches.

The test: Does the fund's alpha (excess return over benchmark) exceed the expense ratio premium versus cheaper alternatives? If yes, the higher expense may be justified.

Conclusion: Every Basis Point Counts

Over a 20-30 year investment journey, expense ratio is one of the few factors entirely within your control. Markets fluctuate, fund managers change, but choosing low-cost funds consistently protects your wealth.

Key takeaways:

Always choose Direct plans over Regular plans (save 0.5-1.5% annually)
Index funds offer the lowest costs (0.1-0.3%) for core portfolio allocation
Among actively managed funds, expense ratios of 0.4-0.7% are excellent
A 1% expense difference can cost ₹15+ lakh on a ₹10 lakh investment over 20 years
US/Canada NRIs should consider GIFT City funds for zero capital gains tax

Your next step:

Join Belong's WhatsApp community where NRIs discuss fund selection strategies and share experiences with different platforms. Or download the Belong app to explore tax-efficient GIFT City investment options.

Sources:

Best Mutual Funds with Low Expense Ratio in India (NRIs Guide)