A mutual fund is an investment vehicle that pools investor’s money and invests them on their behalf. The mutual fund is managed by a professional fund manager and it is the best investment option for the investor who does not have much knowledge and time to invest in the stock market. Investing in mutual funds, helps to meet your financial goals and grow your money over the long-term.
But, all these services do not come for free and the cost of these services should be borne by the investor himself. As an investor, it is very important to check the charges involved while investing in mutual funds.
A. One time charges:
1. Transaction Charges:
Transaction charges are one time charges and they are incurred at the time of investing in Mutual Funds. Transaction charges are incurred if you invest in Mutual Funds through a mutual fund distributor or intermediary. It is levied only if the investment is above Rs 10,000.
You have to pay the transaction charges of Rs 150 (If you are a first-time investor) and Rs 100 (If you are not a first-time investor) for the investments of Rs 10,000 and above. The transaction charges are deducted from the investment amount and it is payable to the distributor.
In the case of Systematic Investment Plans (SIPs), if the total commitment towards the SIP is more than Rs. 10,000, a transaction charge is deductible.
2. Entry Load:
Entry load is charged when the mutual fund unit is purchased. Now as per the SEBI rules, mutual funds are not allowed to charge entry load.
3. Exit Load
Exit load is a charge levied at the time when an investor redeems or sells his mutual fund units. Exit load is charged mainly with the intention of making investors stay invested for the lock-in period. In many cases, if an investor sells his mutual fund units after the lock-in period, he will not be charged any exit load. Exit load is not fixed for all the funds; it varies from one fund to another.
B) Recurring Charge
The expenses are charged on Daily Net Assets of the specific mutual fund. The regulator provides the guideline rate and mutual funds are not allowed to charge more than the specified structure. Even though the regulator specifies the expense ratio structure, it varies based on the size of the net asset of the fund. If the net asset is higher, the expense ratio will be less and if the net asset is lower the expense ratio will be high.
Every day the expenses are deducted from the Net Assets of the fund and NAV declared is after adjusting the expenses.