What are the Expenses Involved in Mutual Fund Investments?
While taking an investment decision, one of the most important factors which must be considered apart from returns is the total cost. It is one of the key ingredients of your net income which must be minimised to a great extent for making the earnings higher. For making a better investment in the mutual fund schemes, there are several related expenses which an investor bears, we will gain superior knowledge about all of them and understand what they are and how they must be considered while taking investment decision.
Understanding Mutual Fund Expenses:
There are several charges which are levied by the fund houses or AMCs and incurred by the investors who hold such mutual funds. The Asset Management Companies are held responsible to handle the assets of the mutual funds and take the requisite decisions on time. They have a professional team of fund managers which manages the assets of the investors on their behalf for which they charge a fee.
Moreover, there are various operational costs are also involved which include investment management, advisory fess, sales/agent commissions, ongoing service fees, legal and audit fees, registrar, marketing & selling expenses, fund administration expenses, and many more. All these expenses together charged to the investor is termed as ‘Total Expense Ratio’ (TER). It is charged on an annual basis on the AUM(Asset Under Managed) at a certain percentage.Further let us take the glance over the major cost of loads associated with the mutual fund investments.
Different Types of Mutual Fund Loads
Loads are the costs determinants which are levied either at the time of purchasing or selling the mutual fund scheme. These charges are over and above of the ‘Total Expense Ratio’.
- Entry Loads: It is referred to the front-end charge deducted from the net asset value at the time of investing in the online mutual funds. SEBI has abolished these charges with effect from August 2009 and now they are not considered so far. These values used to be as high as 2.25% from the equity funds prior to abolishment.
- Transaction Charges: Since August 2011, SEBI has permitted all the AMCs to collect a certain amount of transaction fee from the investors. The investors who have invested for the first time in mutual funds and their investment value is more than Rs.10,000, an amount of Rs.150 shall be chargeable. While for the current investor the fee is Rs.100 only.Moreover, in case of SIPs, where the total committed investment amount is more than Rs.10,000, a transaction charge of Rs.100 is leviable, which is held payable in four equal instalments starting from the second month to the fifth month.
- Exit Loads: This is an amount charged from the investors who are either redeeming or switching their funds in a shorter span of time since they made investment. Mutual funds charge this amount to make the investors stay invested for a particular time span which is primarily pre-determined in most of the mutual funds cases.
Impact of These Costs on Mutual Funds
It is a known factor by every investor that the value of investment and returns are earned after deducting the overall cost incurred on holding them. In the case of mutual funds investments SIPs or lumpsum, the cost of the scheme reflects the efficiency of the fund house to operate in an adequate manner.These costs help in determining whether the scheme and the AMC is effective enough and have the potential to provide the expected returns. Although cost or loads cannot be the only factor to determine whether to opt for a plan or not, investors must evaluate that the services for which he/she is going to spend is worthy enough. You must not spend on services which does not provide you the desired results.
So, we guess you could have gained better understanding of the various expenses or loads associated with the mutual funds. You have to consider them for buying the right plan at lower price to earn better returns.
MySIPonline and its team can be helpful for you in taking a better decision in this regard. You must get associated with us to avail our services for making a worthwhile investment in mutual funds.
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