Costs associated with MFs

09 Jan, 2017

Mutual Funds are one the most sort after mode of investments. They give you an opportunity to earn more than various deposit schemes offered by the banks. Mutual funds come with some amount of risk because the money of the unit holders is invested in securities in accordance with the objectives laid down in the offer document. However, there are some costs associated with MFs an investor should know before purchasing MF units.

There are different types of mutual funds that you can invest in. Like the regular notion goes, you can invest in Market related funds that can give you higher returns, but they come with higher risks. If the market is doing really badly, you may have to forego some of your principal amount. The other popular type of mutual funds is the debt related funds. The returns in these are not as high as the market related funds but the outcome is more likely to be better than your deposits. Also, you do not have much risks involved in these.

You can choose any of the mutual funds that you want to invest in, however, you need to be aware about certain charges and costs that are involved while you are dealing with these funds. We shall be discussing these charges.

  1. One time charges - These are the charges that the bank or the asset management company charges once in your term. They can be charged either at the start of the term or while you exit the term.

  1. Entry Load - These are charged when the units are purchased at the start of the mutual funds term. However, this fund has been abolished currently by the Securities and Exchange Board of India (SEBI).

  2. Exit load - This is a charge at the exit of the term. There is no fixed value or percentage of exit load as it depends on the scheme. These charges vary from 0.50% to 3%. If the holder continues to invest in the unit after the term this charge may not be applied.

  3. Transaction charge - This is a onetime charge that is applied when the money is invested in the term. This charge is applied to investments above (INR 10,000).

  1. Recurring charges - These are the funding running expenses that are charged on a daily basis and your Net Asset value (NAV) is declared post deductions of these.

  1. Other charges - There are certain other charges that may be levied on you fund depending on the scheme that you opt for. These charges are for professional fund management, regular operation, investment management ,advisory , ongoing service , legal and audit , registrar and transfer agent, marketing and selling expenses etc.

The ratio for any of the charges applied on mutual funds is not fixed. There are guidelines shared for each of these charges by the SEBI. However, the exact value differs depending on the scheme that you opt for and the provider of the funds. It is advisable that you read through the offer document thoroughly before you invest. A good idea will be to have the agent explain all these charges to you before you sign on the dotted lines.

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