If a fund has a 1% expense ratio, it deducts 1% of your invested amount each year to cover management, admin and marketing costs. The fee is taken from the fund's assets, so it quietly reduces your returns rather than appearing as a separate bill.
The number sounds small but matters hugely over decades. On a ₹10 lakh investment, 1% is ₹10,000 a year, and that drag compounds as your balance grows.
This is why low-cost index funds and ETFs, often charging under 0.3%, appeal to long-term investors. Actively managed funds charge more and must beat the market by enough to justify the extra cost.