What is expense ratio in a mutal fund?

The expense ratio is the total amount of annual expenses incurred by the fund. It includes the management fee and operating expenses like the registrar and transfer agent fee, audit fee, custodian fee, marketing and distribution fee. The expense ratios of equity and debt funds differ. Since the expenses of equity funds are more than those of debt-oriented funds, the expense ratio on equity funds is greater.As per the regulations of the Securities and Exchange Board of India (SEBI), a mutual fund can charge a maximum expense of 2.5 per cent (equity funds), 2.25 per cent (debt funds), 1.5 per cent (index funds) and 0.75 per cent (Fund of Funds).A fund with lower expense ratio and good returns is a very good since the cost of the fund will not eat up the returns generated.