Expenses involved with mutual fund investment and SEBI policy

Owing to the rise in investments, the stock market landscape has changed drastically in the past few years. New reforms have been introduced to make investments easy and free from fraud. Investment sources such as equity funds, government bonds and mutual funds have become more investor friendly. However, services like mutual funds now come with charges and fees for favorable returns.

Here is a list of direct and indirect charges levied on a mutual fund investment scheme.

  1. Upfront Charges: It is one of the initial charges levied in a mutual fund investment scheme. Investor has to pay the upfront charges to the asset management company to buy mutual funds. Though it is a one-time charge it could increase your total investment amount. Indians are exempted by Securities and Exchange Board of India (SEBI) from paying the entry load or upfront charges. The upfront charges also include the commission or brokerage the company pays to the person managing your portfolio.
  2. Expense ratio:To operate your mutual funds account, the AMC’s charge you a fee which differs according to the activeness or capacity of the funds. It is also, at times referred to as fund management fee. The expense ratio for a mutual fund is charged on a per-stock basis in your portfolio and is deducted from the total assets of the fund before the share price is determined.
  3. Transaction charges:Approved by SEBI in 2011, it is a one-time charge levied on mutual funds and SIPs. AMC’s are permitted to collect transaction charges if the investment amount is above INR 10,000. If the investment amount is lower than INR 10,000 no charges shall be levied on the investment amount. The transaction charges for new investor is around INR 150 and for existing investors INR 100.
  4. Exit load:When the investor wishes to withdraw from the investments before the stipulated time, s(he) has to pay exit load to while closing the account. It ranges If taken positively these charges can benefit you over the long term. These charges can stop you from exiting the scheme and gaining substantial profits. However, the AMC’s are not permitted to impose exit load on short-term
  5. Taxesand other indirect charges: AMC’s often levy charges which incur after the scheme has been initiated. Taxeslike TDS, Securities Transaction Tax, Dividend Distribution Tax and Capital Gains Tax can be levied during the term of investment.

Hence, it is essential to check the charges and keep the necessary amount ready before investing.

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