Does Expense Ratio Still Apply After Stopping SIP? Here’s What You Need to Know

Mutual fund investments often come with recurring costs that investors need to be aware of—even if they stop investing actively. One such cost is the expense ratio, which continues to apply as long as you hold units of a mutual fund, even after you stop your Systematic Investment Plan (SIP). In this blog, we break down how this works and what it means for investors who choose to stay invested without making fresh contributions.

What is an Expense Ratio?

The expense ratio is the annual fee that a mutual fund charges its investors to manage the scheme. This includes fund management fees, administrative costs, registrar fees, audit charges, and other operational expenses. However, this fee isn’t collected directly from the investor’s account. Instead, it is adjusted in the Net Asset Value (NAV) of the fund on a daily basis.

This means that the NAV you see is already net of these charges, and the impact of the expense ratio is indirectly reflected in your fund’s daily value.

What Happens When You Stop Your SIP?

Stopping a SIP simply means that you’re no longer making regular investments into the mutual fund. However, any units you already hold remain invested in the scheme unless you choose to redeem them.

The mutual fund continues to manage these units just like it does for all other investors. And because expense ratios are charged on the total assets under management (AUM), the cost is shared by all unit holders, whether or not they are still contributing via SIPs.

So, yes—the expense ratio continues to be deducted for as long as your money remains invested in the fund, regardless of your SIP status.

Why Does the Expense Ratio Still Apply?

The rationale is simple: the mutual fund continues to manage your investment. Fund managers monitor holdings, rebalance portfolios, and execute decisions that aim to deliver returns to investors. All of these activities incur costs. Since your investment continues to benefit from the fund’s management, the associated cost in the form of the expense ratio remains applicable.

Can You Avoid the Expense Ratio?

While it’s not possible to avoid the expense ratio altogether (unless you exit the scheme), investors can be mindful of it when selecting funds.

Funds with lower expense ratios can be more cost-efficient, especially for long-term investments where fees compound and can significantly impact returns over time.

It is also worth noting that passive funds—like index funds or exchange-traded funds (ETFs)—tend to have lower expense ratios than actively managed ones. However, the suitability of any fund depends on multiple factors beyond just cost.

Final Thoughts

To summarise, expense ratios continue to be deducted from your mutual fund holdings even if you stop your SIP, as long as you hold the units. This ongoing cost is part of mutual fund investing and reflects the continuous management of your assets. Being aware of these costs is crucial in understanding the long-term implications on your investment journey.

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. This does not constitute a personal recommendation/investment advice. It does not aim to influence any individual or entity to make investment decisions. Recipients should conduct their own research and assessments to form an independent opinion about investment decisions. 

Mutual Fund investments in the securities market are subject to market risks, read all the related documents carefully before investing.