Let’s talk about Mutual Fund Fees, Charges, and Expenses

If you are investing in a mutual fund, the main benefit you enjoy is that a team of experts handles your money to purchase and sell assets/stock/securities on your behalf.

An Asset Management Company (AMC) controls the operation of a mutual fund through a fund manager. A fund manager is supported by a team of finance and market experts having considerable industry experience and passion.

Apart from these, communication is sent periodically on investments; charges are given to the intermediaries, along with meeting other investment-related expenses. But, of course, all these services and expenses come with a cost. For this, they charge a fee to take care of everything. So, as an investor, it is essential to know the charges involved in investing in mutual funds. Now, let’s know various mutual fund charges and their relevance to investors.

Mutual Fund Charges

An investor usually incurs two charges – One-Time Charge and Recurring Charge.

One Time Charge

One-time charges incur during the initial period for the investment and only once. It’s also commonly known as a transaction charge.

Load

A load is a commission or fee. AMCs or intermediaries usually collect it before or after the investment. The charges are also levied on investors for redemption or early withdrawal.

Entry Load

When an investor purchases a fund unit, he pays a nominal charge. It is called an entry load. However, not all funds levy this. Currently, it is not charged as per SEBI regulation.

Exit Load

Exit load is levied on investors when they decide to exit the MF scheme and redeem their mutual fund units. The rate for this is not fixed. This variable load is around 0.25% to 4%, depending on the scheme. The fund houses mainly want to make people stay invested for a certain period, called the ‘lock-in period.’ So no exit charges apply if you redeem your units after the lock-in period.

Transaction Charge

This charge is applicable once when the money is invested. The transaction fee is charged for investments over Rs. 10,000/-. It applies to SIP also. It is paid to the distributor/intermediary who is selling the fund.

Recurring Charge

The fee that the investor pays daily, quarterly, or annual is a recurring charge. Therefore, it is also referred to as the periodic fee. A recurring fee is generally charged for maintaining the portfolio and consultation, marketing, and other expenses.

Management Fee

The management fee is an expense charged for paying the fund manager for his services and the investment management. It does not come under other costs.

Account Fee

Some investors do not meet the minimum balance criteria. As a result, AMCs charge this fee for maintaining their account and deducting it from the investor’s portfolio.

Distribution and Service Fee

This fee is charged from investors for the different marketing campaigns such as AMC marketing, printing, and mailing that keep the investor informed. It is also called a 12(b)1 fee.

Switch Price or Exchange fee

Some funds allow switching between mutual funds. So, a person can switch from one scheme to another scheme at a price called Switch Price. The investment can be wholly or partially transferred depending upon the scheme.

Expense Ratio

Running a mutual fund costs money. All mutual funds have a fee referred to as an expense ratio which investors need to pay. This fee is expressed in percentages per annum and deducted from the fund’s total assets before determining the share price.

The expense ratio includes administrative, management and all other expenses, such as the intermediary expenses or distributors’ commission. SEBI regulates this expense ratio. It is also called mutual fund charges, management fees, or operating expenses.

An asset manager always tries to deliver good returns. Hence, the reputation of the AMC and fund manager increases with their performance which satisfies investors. In addition, this expense ratio or the fee to the fund house from individual investors also motivates them to do their job well.

If you are not market savvy, it is always better to consult a qualified advisor or intermediary. Unfortunately, availing of professional expertise means you have to pay a commission to the distributor. It becomes part of the overall expense ratio and pushes it higher. However, an intermediary plays a critical role in helping you ultimately meet your financial goal.

That’s why Comparte Investment team asks do you have “Nivesh Ki Aadat”.

With this one can say “Mutual Fund Sahi hai”,  so let me do Nivesh