At the end of the day, your friend is in the business of making money for both the people invested in his funds and himself. He charges the people invested in his funds for running and managing the funds, This % he charges is called the TER (total expense ratio). The TER covers : sales & marketing / advertising expenses, administrative expenses, transaction costs, investment management fees, registrar fees, custodian fees, audit fees.
An expense ratio (ER) measures how much of a fund’s assets are used for administrative and other operating expenses. An expense ratio is determined by dividing a fund’s expenses by the average value of its assets under management. The TER is calculated as a percentage of the Scheme’s average Net Asset Value (NAV). The daily NAV of a mutual fund is disclosed after deducting the expenses. Expenses reduce the fund’s assets, thereby reducing the return to investors.