The expense ratio is the yearly cost of owning the fund, expressed as a percentage of your investment. If the ratio is 1.5 percent and you hold ₹1 lakh, about ₹1,500 a year comes out of the fund's assets before your NAV is calculated. You never see a bill; it is already subtracted.
This covers the manager's fee, the registrar, the custodian, distribution commission and marketing. SEBI caps the ratio and forces disclosure, so you can always compare. Index funds tend to be cheapest; actively managed equity funds cost more because people are doing the picking.
Costs compound just like returns. Over twenty years, a one percent difference in expense ratio can cut your final amount by nearly a fifth. The ratio is not the only thing that matters, but it is the one thing you know for certain in advance.
Costs are the only part of your return you can know today. Read them first.