If you are an investor, then you must know about the different kinds of charges that are involved with any mutual fund scheme. When your invested amount of money gets handled by the team of professional experts, and stocks are sold and bought on the investor’s behalf, periodic communication is sent upon the investments, fees are given to the intermediate parties –then all of these come at a certain cost or charge known as the charge of the mutual fund.
Nothing in this world comes for free. Even top SIP portfolios have certain charges that have to be paid by the investor. Therefore, the main question is “how much can a particular mutual fund charge out of the investors?”. Does it happen to be a one-time charge or is it charged periodically?
In any typical mutual fund, there are two types of charges that are imposed upon the investors. These include:
One time Charges
- Entry Load: These types of charges are the ones that are levied upon some units of mutual funds being purchased. The particular mutual fund scheme would be selling the overall unit price at a higher price than the normal NAV. In the current scenario, the mutual fund schemes are not allowed to charge the entry load on the investors.
- Exit Load: This is another type of one-time charge imposed by the mutual fund schemes on the investors. The mutual fund scheme would be buying back the particular units at a lower rate than the current NAV. There is no fixed value of the exit loads that might be charged. It usually tends to vary from time to time and would greatly depend on the particular mutual fund scheme. If the investors are able to hold the particular investment beyond the given period, then no exit load is charged on them.
- Transaction Charges: This is the most common type of charge that is levied upon by any organization that offers some kind of services. The transaction charges are usually one-time charges that are applicable when a certain amount of money is invested by the investors. This is usually applicable when the investment of the amount 10,000 INR or above is being made. This is usually paid to the intermediate party or the distributor who might be selling the particular mutual fund.
The transaction charges of 100 INR are charged for the SIP mutual fund scheme for an investment of 10,000 INR or above. However, this is not the monthly SIP amount. The SIP transaction charges are usually deducted over a period of four installments that starts from the 2nd installment and continues till the 5th investment.
These are also referred to as the Fund Running Expenses or the Ongoing Expenses. Such charges are usually charged on the Daily Net Assets with respect to the particular mutual fund. The guidelines for rates are provided by the regulator. The mutual fund schemes are not allowed to charge more than the given charge structure. The expenses get deducted on a daily basis from the available Net Assets of the given fund and the NAV declared is usually after the expenses have been adjusted.
Do the Expense Ratios Vary Between Funds?
There are usually two categories of the diversified equity funds that are offered by the different mutual fund schemes. Although the overall structure of the expense ratio gets stipulated by the regulatory company, it tends to vary on the basis of the size of the overall net assets of the mutual fund. The higher the value of the net assets, the lower would be the expense ratio and vice versa. This, as a result, impacts the generation of returns by the mutual fund schemes.
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