Consider these 9 things before investing in mutual funds!
What is the right way to invest in mutual funds? How do mutual funds work? What kind of risk is involved? Which fund is right for whom? What things should be kept in mind before investing? Watch this video to know-
None of your financial products is devoid of any charges, and so are mutual funds. The asset management company (AMC) charges fees from the investors as they employ fund managers to look after each scheme. These fund managers further have a team of research heads who handles various analysts. It is for these reasons that investors need to pay the charges to the fund houses. Let’s look at various charges associated with mutual funds:
1.Entry load
Investors are charged an “entry load” when they buy mutual fund units from a fund house. The Securities and Exchange Board of India, however, deferred the entry load in August 2009.
2. Exit load
When a mutual fund investor sells their shares, the fund house charges an exit load. Scheme-to-scheme variation in exit loads is not uncommon. Generally speaking, exit fees range from 0.50% to 3%, depending on the type of investment you make. In order to keep investors in the fund for a specified amount of time, the fund house charges an exit load.
That said, some plans impose an exit fee, whereas others do not. Equity funds often levy an exit fee of 1% based on the total duration of time investors keep their investments in the fund. Schemes can levy an exit fee if the holding period is less than one year.
3. Management fees
Investors pay these fees to compensate fund managers for the services they provide in managing the investment plan.
4. Account fees
When investors fail to achieve the minimum balance requirement, AMCs may charge account fees. These costs will impact investment returns.
5. Service fees
Asset Management Companies charge these fees to cover the costs of printing, shipping, and marketing.
6. Switch fee
It is possible to move mutual fund investments among different schemes. It’s called a switch fee, and you will have to pay it if you use this service.
7. Ongoing expenses
Charges that are charged on a regular basis are referred to as recurring charges (also known as ongoing expenses or expense ratio). For mutual funds to operate, they must adhere to a set of guidelines set by the regulator.
The fund’s expenses are subtracted from the fund’s net assets every day, and the fund’s net asset value (NAV) is calculated by subtracting the expenses from the fund’s NAV.
8. Transaction charges
At the time of investment, this fee will be charged once. To pay the distributors or intermediaries, these fees are collected. Investments of less than Rs 10,000 are free of charge. For the first time investors, the minimum investment is Rs 150. Existing investors pay Rs 100 in fees.
9. Brokerage fees
As an investor, one can invest in mutual funds through a direct plan or regular plan. Through a direct plan, you can invest directly without the help of any agent or brokerage. There are mutual fund companies that allow investors to apply for schemes on their own. There are no brokerage fees, and the process is quite straightforward with direct investment.
However, the brokerage or agents guide you throughout the mutual fund buying decision based on your age, objective, and risk appetite when it comes to the regular plan. For rendering these services, they charge a fee for their services.