As an investor, it is very important to know what are the charges involved in investing in mutual funds. When your money is handled by a team of experts – stocks are bought and sold on your behalf, periodical communication is sent on investments, charges are given to the intermediaries etc and all these expenses come with a cost.

There are no free lunches. So the question is how much a mutual fund can charge? Is it one time in nature or regular?

There are broadly two types of charges:

1.One time charges:

Entry Load: The charges that are levied when the units are being purchased. The mutual fund would sell the unit price higher than the NAV. At present Mutual Funds cannot charge entry load.

Exit Load: The mutual fund would buy back the units at rate lower than the NAV. There are no fixed exit loads which are charged. It varies based on the scheme. The current practice is the funds could charge any way from 0.50% to 3.00% depending on the holding period. If the investors continue to hold the investment beyond the specified period, no exit load is charged.

For eg: An equity fund currently at an NAV of Rs. 72/- per unit charges exit load of 1% if the investor exits within 1 year of investment. If an investor wants to sell his mutual fund units, which were bought 7 months back the redemption NAV for such investor would be Rs.71.20/-

A13-1

Illustration disclaimer: The above example is only for illustration purposes & shall not be construed as indicative yields/returns of any of the Schemes of Canara Robeco Mutual Fund.

If the investor has sold 1000units, the total exit load applicable would be Rs.720/-. A Mutual Fund cannot use these charges for paying commission or meeting any of their expenses. This Rs. 720/ should be invested back to the fund, which would benefit the investors who remain invested for long term.

As per this illustration, if the investor redeems after 1 year, there is no exit load.

Transaction Charges: These charges are one time charges applicable when the money is invested. This is applicable for the investments of over Rs. 10,000/-. This would be paid to the distributor/intermediary who is selling the fund.

A13-2

Illustration disclaimer: The above example is only for illustration purposes & shall not be construed as indicative yields/returns of any of the Schemes of Canara Robeco Mutual Fund.

The transaction charges of Rs. 100/- is charged for the SIP commitment of Rs. 10,000/- or above (not monthly SIP amount). The SIP transaction charges are deducted over 4 installments starting from 2nd installment to 5th installment.

2.Recurring Charges (Ongoing expenses/Fund Running Expenses):

The expenses are charged on Daily Net Assets of the specific mutual fund. The guideline rates are given by the regulator and Mutual Funds cannot charge more than the stipulated structure. The expenses are deducted every day from the Net Assets of the fund and NAV declared is after adjusting the expenses.

A13-3

Illustration disclaimer: The above example is only for illustration purposes & shall not be construed as indicative yields/returns of any of the Schemes of Canara Robeco Mutual Fund.

Does the expense ratio vary between funds?

There are twocategory of diversified equity funds offered by different mutual fund companies. Fund A has a total size of Rs. 1000crs and Fund B has a total size of Rs. 100/- crs. Does it make the difference in-terms of the total expenses charged by the fund?

A13-4

Illustration disclaimer: The above example is only for illustration purposes & shall not be construed as indicative yields/returns of any of the Schemes of Canara Robeco Mutual Fund.

Even though the expense ratio structure is stipulated by the regulator, it varies based on the size of the net assets of the fund. Higher the net assets, lower expense ratio and lower the net assets higher the expense ratio. This, in turn impacts the returns generated by the respective mutual fund. In case of funds like Liquid funds, the difference in expense ratio would be one factor.

Even though the expense ratio structure is stipulated by the regulator, it varies based on the size of the net assets of the fund. Higher the net assets, lower expense ratio and lower the net assets higher the expense ratio.This, in turn impacts the returns generated by the respective mutual fund. In case of funds like Liquid funds, the difference in expense ratio would be one factor.

A13-5

Illustration disclaimer: The above example is only for illustration purposes & shall not be construed as indicative yields/returns of any of the Schemes of Canara Robeco Mutual Fund.

Disclaimer: Mutual fund investments are subject to market risks, read all scheme related documents carefully.

This is a sponsored post.





Read More

LEAVE A REPLY

Please enter your comment!
Please enter your name here