Why Some Mutual Funds Charge More Than Others for the Same Thing

By Arun K | Last Updated : 17 September 2026, 10:13 PM IST
mutual fund represntation image
Photo by micheile henderson on Unsplash
Open two mutual fund fact sheets side by side, both tracking the Nifty 50, both holding roughly the same fifty stocks in roughly the same proportions, and you'll often find one charges an expense ratio of 0.1% while the other charges 1% or more. On paper they're doing nearly identical work. So why does one cost ten times more than the other, and does that extra cost actually buy you anything?
Quick Read
What an Expense Ratio Actually Pays For?
An expense ratio is the annual fee a mutual fund charges to manage your money, expressed as a percentage of your total investment. It covers the fund manager's salary, research costs, administrative expenses, marketing, and in the case of regular plans, a commission paid to the distributor or agent who sold you the fund.
 
That last part is where a lot of the price difference actually comes from. A direct plan, bought straight from the fund house's website or a direct investment platform, skips the distributor entirely, so there's no commission built into the fee. A regular plan, bought through a bank, an agent, or a distributor, includes that commission, which is why regular plans almost always carry a noticeably higher expense ratio than the direct version of the exact same fund. Over twenty or thirty years, that difference of even half a percent compounds into a large gap in your final returns.
 
Active Funds vs Passive Funds: A Different Kind of Price Gap
An index fund simply mirrors a market index like the Nifty 50 or Sensex. There's no fund manager trying to pick winning stocks or time the market. The computer essentially does the work, buying and holding the same stocks in the same proportion as the index. Because there's minimal research and decision making involved, these funds can charge a fraction of a percent and still run profitably.
 
An actively managed fund, on the other hand, employs a fund manager and research team who are actively trying to beat the market by picking specific stocks they believe will outperform. This requires real expertise, ongoing research, and constant monitoring, all of which costs money, and that cost gets passed on through a higher expense ratio.
 
Does Paying More Actually Get You Better Returns?
This is the question that matters most, and the honest answer is: not reliably. Decades of data, both globally and increasingly in India, show that a large majority of actively managed funds fail to consistently beat their benchmark index over long periods, once you account for the fees they charge. Some active fund managers do beat the market in certain years, sometimes for several years running, but very few manage to do it consistently over a full decade or more.

This doesn't mean active funds are pointless. Some fund managers with strong long-term track records have delivered meaningfully better returns than a plain index fund, even after fees. But picking which active fund manager will be one of the few to pull this off, in advance, is really difficult, and most retail investors don't have the tools or time to evaluate that properly.
 
If you're not particularly interested in researching individual fund managers and just want a reasonable, low-cost way to participate in market growth, a direct plan index fund is hard to beat on a cost basis. If you're willing to put in the work to research a specific active fund's history, the philosophy behind its stock picks, and how consistently it has performed relative to its benchmark across multiple market cycles, an active fund could still be worth the extra cost, provided you're choosing based on genuine research rather than past year's returns alone, which tend to be a poor predictor of future performance.

This article is for general informational purposes only and does not constitute investment advice. Please consult a financial advisor before making investment decisions.