Understanding Expense Ratios of Index Funds

I am looking to get started in Index Funds but first want to understand expense ratios properly. I am going to use an example so feel free to correct my interpretation.

Suppose in Year 0 you invest a principal of INR 1,00,000. Each year you receive a fixed return of 10% (obviously this varies but let's make this assumption). When you sell your index/mutual fund units, after one year and after 8 years, you receive:

• Year 1: 100000 * (1.10 ^ 1) = 1,10,000
• Year 8: 100000 * (1.10 ^ 8) = 2,14,358.88

(without tax provisions)

Now, let's say there is an expense ratio of 0.5% = 0.005. Subtracting 0.005 from the amount is equivalent to multiplying by 0.995 (= 1 - 0.005).

So, how is this incorporated into the calculation?

Option A: Expense ratio is charged each year of holding period regardless of when you sell your index/mutual fund units.

After one year and after 8 years you receive:

• Year 1: 100000 * (1.10 * 0.995) ^ 1 = 1,09,450
• Year 8: 100000 * (1.10 * 0.995) ^ 8 = 2,05,933.08

Option B: Expense ratio is charged at the end of the period, that is, when you sell your index/mutual fund units.

After one year and after 8 years, you receive:

• Year 1: 100000 * (1.10 ^ 1) * 0.995 = 1,09,450
• Year 8: 100000 * (1.10 ^ 8) * 0.995 = 2,13,287.08

Is it Option A or Option B? Or is it something else?