The mutual fund industry is a common and reliable investment in India. But with the investors becoming conversant in the fees and expenses charged by them, it is in a position where it has to find out ways of cutting those expenses. And as with other industries, it has been engulfed by the outsourcing wave to curb costs.

No service is a free lunch. And this applies to the mutual fund industry too. Now a days, the investors have known to interpret a mutual fund prospectus better than what they used to do previously. They now have understood that while looking into the offerings by the MFsbesides looking at the fund's track record, latest performance and the credit worthiness of the fund managers and so on, one has to look into the fund expenses too. Not to know the cost efficiency of the fund but directly to know how much one should have earned before the expenses.

Investors many a times believe that a costly fund performs well. This may be compared to the halo effect wherein the investors get into the perceptual error of going in for products with a high Expense Ratio (ER) believing that a high ER would ensure consistent and good performance of the fund. But there are records that prove that this is not a holy writ.

According to Lipper, there is an inverse relationship between the mutual fund costs and the return to the shareholders. The report which covers a period of 1998-2002, states that the Elfun Money Market Fund which is the lowest in rank in the Average ER (Expense Ratio) scores the highest rank in the Net Average Annual Return.

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