Mutual Fund Investment Fees and Charges in India
Thinking about investing in mutual funds? Smart move! Mutual fund investments can help you grow your wealth for various life goals without the stress of picking individual stocks. However, before you jump in, let's talk about something you pay close attention to — mutual fund charges. High charges can significantly diminish your gains in the long run.
Mutual Fund Management Fees You Need to Pay
There’s a charge you need to pay to mutual fund companies or asset management companies (AMCs) to manage your investment. This fee is expressed as the total expense ratio or TER, calculated as a percentage of the scheme’s average net asset value (NAV).
However, SEBI has fixed the maximum TER fund houses can charge as a percentage of daily net assets (see table) for equity and debt funds. In other words, mutual fund fees can’t exceed this limit.
| Asset Under Management (AUM) | Maximum TER for Equity Funds (in %) | Maximum TER for Debt Funds (in %) |
|---|---|---|
On first ₹500 crores | 2.25% | 2% |
On the next ₹250 crores | 2% | 1.75% |
On the next ₹1250 crores | 1.75% | 1.50% |
On the next ₹3000 crores | 1.60% | 1.35% |
On the next ₹5000 crores | 1.5% | 1.25% |
On the next ₹40,000 crores | The total expense ratio reduces by 0.05% for every ₹5,000 crores increase in daily net assets. | For every ₹5,000 crore increase in daily net assets, the total expense ratio decreases by 0.05%. |
Above ₹50,000 crores | 1.05% | 0.80% |
When you invest in a mutual fund, you can find information about the mutual fund fees from the fund’s factsheet. Also, mutual fund management fees are higher for regular plans than direct plans as the former entails commissions paid to the intermediary.
Mutual Fund Withdrawal Charges
Yes, mutual funds allow you to withdraw your money anytime. However, funds charge an exit load if you redeem your investments fully before a specific period, generally within a year of investment. Exit load can either be a percentage of the redemption amount or based on the time you hold on to your investment.
The moral of the story; mutual funds reward patience. If you want to avoid paying mutual fund withdrawal charges in the form of exit loads, remain invested for a long period.
Hidden Charges in Mutual Funds
Let’s get real. No one likes hidden charges. However, mutual funds may have some hidden charges in the form of transaction fees or certain investment strategies. An ideal way to avoid surprises associated with hidden charges in mutual funds is by reading the fund factsheet in detail.
Summing it Up
While investing in mutual funds can help you grow your money, it’s crucial to ensure you don’t end up paying extra in the form of high charges. To avoid high costs, you can opt for direct plans and compare expense ratios before investing.
This article is for informational purposes only and does not constitute financial advice. It is not produced by the desk of the Kotak Securities Research Team, nor is it a report published by the Kotak Securities Research Team. The information presented is compiled from several secondary sources available on the internet and may change over time. Investors should conduct their own research and consult with financial professionals before making any investment decisions. Read the full disclaimer here.
Investments in securities market are subject to market risks, read all the related documents carefully before investing. Brokerage will not exceed SEBI prescribed limit. The securities are quoted as an example and not as a recommendation. SEBI Registration No-INZ000200137 Member Id NSE-08081; BSE-673; MSE-1024, MCX-56285, NCDEX-1262.
