Fees and Charges in Investing in Mutual Funds in India

A mutual fund investment involves a number of fees and charges. Therefore, it is important for investors and potential to be well-versed with these costs before investing.

Here is what one should know about various mutual fund fees and charges applicable in India.

What Are the Charges Associated with Mutual Fund Investments?

Entry Load

Entry load is the fee levied on investors when they invest in a mutual fund scheme for the first time. This fee covers the distribution costs borne by the asset management company for promoting an MF scheme. 

Before the year 2009, this fee varied with each fund house in India. However, according to the current SEBI regulations, fund houses cannot charge an entry load from their investors.

Exit Load

When investors exit a mutual fund scheme within a specific period from the date of purchase, an exit load is levied on these individuals. AMCs impose an exit load on investors to discourage them from opting out of a mutual fund scheme prematurely. Moreover, this fee allows fund houses to reduce the volume of withdrawals. 

Generally, fund houses charge an exit load of around 1% on redemption value. It is common for the fund houses to charge exit load if you as an investor redeem the units within a year. While there is no exit load is charged post one year of investment in the same scheme. 

Transaction Charges

This charge is levied on an individual only once during his/her investment. A transaction fee of Rs. 100 to Rs. 150 may be applicable for investments worth Rs. 10,000 and above. Likewise, this fee is also charged on SIP investments that are worth over Rs. 10,000. Needless to say, investments worth less than Rs. 10,000 do not involve a transaction fee. 

Disclaimer: Groww doesn't charge any transaction charges for mutual funds investments.

Expense Ratio

This charge is synonymous with mutual fund fees and charges for most investors. Expense ratio is an annual fee, which is expressed as a percentage of a fund’s daily net assets. It is charged by an asset management company for managing an MF scheme. Therefore, it covers all the costs of managing and running a mutual fund scheme. Such costs include sales and marketing expenses, administration fees, distribution fees, fund manager’s fees, etc. 

The expense ratio is calculated by evaluating a scheme’s total expense incurred and dividing this figure by an AMC’s total assets under management (AUM). 

On that note, we must underline that the expense ratio is always higher for regular plans of mutual fund schemes than their direct plans. The reasons for this difference are discussed in the next section.