Mutual Funds Fees And Charges Every Investor Sould Be Aware Of

 

Mutual funds are gaining popularity among all types of investors, mainly because of the returns and diversification. But have you ever thought of the expenses they charge directly or indirectly for investing in their funds?

Mutual funds are active funds, meaning fund managers, portfolio managers, or a group of financial advisors review the performance daily, weekly, or monthly and make necessary adjustments on the allocation.

Portfolio managers are persons who have in-depth knowledge about the market and have a more excellent experience. Who will pay these guys? Obviously, it's you who have to pay them, right?

Here are the expenses and fees. Now let's discuss one by one.

Expense Ratio

All the expenses incurred by the company for managing funds like advisory fees, registar registration and commission fee, regulatory fees, etc., combined together to form an Expense Ratio.

The expense ratio can vary between different fund types and different fund houses. NAV values are adjusted based on expense ratios.

Exit Load

Exit load is the charge that the fund house charges you if you withdraw your money before a pre-determined period. Every fund has an exit load. It can either be nil or some percentage value. Generally, liquid funds don't have exit loads. Again it can vary between different fund types and fund houses.

For example, if a fund has an exit load of 1% if redeemed within one year of unit allocation. They pay you only after taking away that 1% from your net value. 

One thing to note is that exit load and lock-in period are entirely different.

Transaction Charges, Stamp Duty and GST

These are charges that are directly imposed on the investor. 

AMCs can collect a one-time transaction fee of Rs. 150 for new investors and Rs. 100 for existing investors if the investment amount is more significant than Rs. 10,000.

In Systematic Investment Plans (SIPs), the total commitment towards the SIP is more than Rs. 10000, a transaction charge of Rs. 100 will be levied payable in four equal installments starting from the second to the fifth installment.

When you select a mutual fund, don't look only at its past performance. Watch out for expense ratio and exit load also.