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Due to this high risk - potentially high returns feature of Small Cap Funds, these schemes are considered suitable only for investors with a high-risk appetite. What is a good expense ratio for a mutual fund A. However, this high exposure to smaller companies also carries substantial risk as the performance of these companies can be significantly impacted by changing market conditions. It is important to note that not all fees associated with mutual funds are included in the expense ratio, however.

The expense ratio decreases the fund’s performance and is included in the fund’s average return percentages. As a result, the potential ability of these schemes to deliver high returns is unmatched. When you buy shares in a mutual fund, the expense ratio is what you pay for the management and operating expenses of the fund. Expense ratio is the fee that mutual funds charge to manage your money, much like a physician who charges a fee for his service. Small Cap Funds primarily invest in small listed companies that have the potential to grow rapidly. But even in the long-term, it is advisable that investors maintain only limited exposure to these Equity Funds due to the potential high volatility of returns. Over such long periods of time, the potential ability of Small Cap Funds to deliver substantial returns is unmatched. Small Cap Funds tend to be quite volatile in the short term, so investors should consider investing in these schemes only if they are planning to stay invested for 7 years or longer. Investors Seeking Long-Term Growth of Capital The expense ratio formula consists of dividing a funds total annual operating expenses by the average value of its total assets managed.