These 5 funds offered under 0.5% expense ratio with up to 26% returns in 5 years
Investors often scrutinise mutual funds for returns, fund house reputation, and manager expertise, but a critical aspect that can significantly impact earnings is the ‘expense ratio’. This fee, charged annually by the fund house for managing investments, is intrinsic to the fund’s performance and directly affects the Net Asset Value (NAV).
In 2025, several equity mutual funds have stood out by combining low expense ratios with robust five-year returns, an essential balance in today’s volatile market. These funds, maintaining operations for at least five years, have generated returns ranging from 20% to 26%.
Why Expense Ratio Matters
While investors typically focus on fund returns, manager track records, and brand reputation, the expense ratio is a critical, often overlooked factor. This annual fee, deducted by the fund house for managing investments, directly affects the Net Asset Value (NAV)—and ultimately, your overall returns. For example, a 1% expense ratio means Rs 1 is deducted per Rs 100 invested, quietly built into the NAV without requiring direct outflow from your side.
Despite recent pressure on equity indices, a few funds have managed to strike the right balance between cost efficiency and strong 5-year returns, making them standout choices:
Leading this list are PGIM India Flexi Cap Fund and Navi Flexi Cap Fund, both offering an expense ratio of 0.43%, with the former achieving a 25.86% return and the latter a commendable 21.94% five-year return. Similarly, the Baroda BNP Paribas Focused Fund, boasting an expense ratio of 0.48%, delivered a 21.87% return, while Edelweiss Flexi Cap Fund provided a notable 26.46% return with a 0.49% ratio. Lastly, the Canara Robeco Flexi Cap Fund offered a 22.63% return, with an expense ratio of 0.56%.
PGIM India Flexi Cap Fund – Expense Ratio: 0.43%, 5-Year Return: 25.86%
Navi Flexi Cap Fund – Expense Ratio: 0.43%, 5-Year Return: 21.94%
Baroda BNP Paribas Focused Fund – Expense Ratio: 0.48%, 5-Year Return: 21.87%
Edelweiss Flexi Cap Fund – Expense Ratio: 0.49%, 5-Year Return: 26.46%
Canara Robeco Flexi Cap Fund – Expense Ratio: 0.56%, 5-Year Return: 22.63%
Why this matters during market dip
Selecting funds with low expense ratios can be advantageous in the long run, especially in challenging market environments. As equity funds navigate through periods of uncertainty, the weight of each cost becomes more pronounced.
With equities facing headwinds over the past several months, high-fee funds are struggling to justify their cost. In contrast, low-cost funds need less outperformance to deliver competitive net returns, giving them an edge in leaner market cycles.
What smart investors should do
While low expense ratios are attractive, investors must also assess long-term fund consistency, fund manager experience, risk profile, and investment strategy. Factors like Assets Under Management (AUM) and fund category can further indicate the fund’s stability and growth potential.
Current market conditions
In the broader market context, equities have faced considerable pressure over the past seven months, affecting frontline equity indices and the performance of equity funds. This underscores the importance of expense ratios, as higher costs necessitate superior performance to yield desired returns. When the market is sluggish, funds with steeper fees face challenges in maintaining competitive returns. Therefore, the expense ratio becomes a pivotal factor, particularly in volatile conditions, as it directly influences the net return on investment.
Amidst these market challenges, it becomes imperative for new investors to consider not just the expense ratio but also other crucial factors such as long-term fund performance, the experience of fund managers, risk profiles, and the fund’s investment objectives.