Asset Management Companies or fund houses which manage mutual fund investments do charge for the service they provide on the investment.
Through the process of starting an investment and staying invested to redeeming the mutual fund scheme, there are various charges that are applicable. Every investor should be aware of charges before investing in any mutual fund scheme. Here are some of these:
Entry and Exit load
Earlier, entry load and exit load was applicable on mutual fund schemes. Entry load which was charged at the rate of 2.25 per cent, is no longer applicable. Entry Load is a percentage of fee levied when an individual buys a mutual fund scheme.
While, an exit load is levied depending on the scheme. Exit load is levied as a percentage amount when the investor exits or redeems mutual fund investments before stipulated date.
Here are some fee structure as per SEBI:
A first time investor in any Mutual Fund scheme opts for subscription or SIP, a AMC or fund house is allowed to pay Rs 150 as transaction charge, where the transaction or SIP value is Rs 10,000 and above.
For existing customers, fund houses can charge a transaction fee of Rs 100. For investments under SIP, a transaction charge of Rs 100 is applicable. Four equal installments are made payable, starting from the 2nd to the 5th installment, where the value of transaction or SIP is for Rs 10,000 or above.
Mutual fund statement of account will reflect all the fees deducted such as subscription amount, transaction charges and net investment.
Mutual funds are supposed to pay security transaction tax (SST) while buying and selling stocks, which is finally borne by investors.
Note that Asset Management Companies (AMCs) will deduct the charges from the investors subscription amount and pay to the concerned ARN holder, along with service tax, if any.
The expense ratio is a standard measurement of how much it costs an investment company to operate a mutual fund. As of now maximum expense a fund house can charge for an equity scheme is 2.5% and 2.25% for debt funds. Investors should note that different funds attract different expense ratios
There are reports that SEBI is considering to reduce the same.