Mutual Fund fees
After a long long wait SEBI ( Security & Exchange Board of India ) has announced that no Mutual Fund house can deduct any amount as any kind of expense from the Investment done by the investor, knowingly or unknowingly. Now the user will have to pay the expenses separately and that would be an additional amount from the amount he wishes to invest.
What was the scenario before?
Let’s say you want to invest Rs 10,000 in a Mutual Fund of your choice. As for many mutual funds it has a standard entry load of 2.25%. This would mean that an amount of Rs 225 would be deducted from your Rs 10,000 and Rs 9,775 only would be invested.
Normally investors are not aware of such small deduction being happening unless you invest in NFO where unit price is Rs 10 but you normally get the units priced at Rs 10.225.
How has the Scenario Changed?
For your investment of 10,000 all your amount would be invested in the mutual fund for buying the units and you may be needed to pay an extra amount to your broker which you can bargain as well depending on your relationship with your broker. If you directly invest without broker then you would not need to pay any extra amount but just need to go to the office for one time to submission of the form.
How its different from previous?
It looks like the new scenario is pretty much same as previous but actually its not. Here are some of the clear distinctions.
- The expense is not deducted blindly and so you know how much you are paying as an expense. This was not the case before.
- If you take the pain of investing it without any brokerage house you can save the fees. As an example if I wish to invest in any SBI Fund you can directly visit the SBI Mutual Fund office and submit the form.
- Now there is nothing called entry load now but its more like expense and so in the world of competition it would be less for some brokerage houses compared to others.
- The Entry load was never given completely to the brokerage houses. In the above example of 225 rupees some would go to the broker and some retained by the fund houses. Now its completely the factor of the broker and fund would need to issue units for complete amount they get giving some additional benefit to the investor.
How do you actually pay less?
Lots of theories but now lets get practical, I would show you how you can actually pay less. First thing is I would not take the burden of visiting 10 Mutual Fund offices to make investment in 10 best funds and so definitely I would be using some one as a broker. Normally I do all my Mutual Fund investment in ICICIDirect.com because of its one click purchase option for mutual funds and so I looked at its brokerage email and found the following.
If the cumulative MF holdings is more than Rs. 8 lakhs, you actually pay no fees.
If the cumulative MF holdings is less than Rs. 8 lakhs, Pay structure is
| Type of Investment | Amount as Fees |
|---|---|
| For SIPs | 30/- |
| For investments | 100/- |
This means if you do a SIP of 1500 Rs per month in any particular mutual fund you used to pay 33.75 as fees and now it would be Rs 30/- For SIPs less than 1500 you would actually pay more brokerage.
Similarly if you invest for Rs 5000 as an investment amount ( which is minimum for major funds ) you used to pay 112.5 as fees but now you would pay Rs 100.
So normally its better for investment but for SIP of 1000 / 500 you would be paying more in ICICIDirect. Check out with your broker’s fees and see how much is the amount where you pay almost same or slightly lesser.
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Hi Shabbir,
I have a query…
Why do most of the big establishments comes with similar types of funds (IPO) often or with a series of same funds…
I relate it to the entry load before it was scraped. But if u can tell me ur view on it.
Did you mean NFO ? If you meant NFO then the main reason for new funds is they can have more investors coming along.
Ok… Two scenarios…
(i) NFO : Why do more investors come for similar type of funds?
I mean wat is the rationale behind it…
(ii) For FPOs, i mean same funds, wat brings them (establishments) more money here….
Thanks
Arun
When in NFO Funds do lots of promotion and so more people invest into those funds. No one would have talked about reliance infrastructure funds if they did not had banners on all the public places.
Again second question I could not understand. Do you mean what brings them to India or something else ?
hi,
Sir can you tell me if i invest through ICICI AMC or HDFC AMC, will the entry load exempted will apply.Online investing is good and cheaper or approaching AMC and doing the mutual fund investment.
Please let me know.
Thanks.
Check out your load before applying and decide accordingly. AMC direct applying means you have 0 load
hi
as far as SIP fees is concerned,i want to know that
in icicidirect.com if i had done a sip of 1500 per month…..
will they charge their fees 30 rs every month?
if that is so then what is advisable, investing direct or through icicidirect.?
Neeraj, Yes they will charge the fees each time your amount is deducted unless you have a MF portfolio of more than 800,000 Rs.
Better to opt for ShareKhan or direct investment.
thanks sir
plz guide me for admission in Islamic banking and insouciance
Hi
I had a small question regarding the Fees change of SEBI if i have invested last year can the broker still charge me fees
Coz as per old rule he would have got the his share of % from the fund house
and secondly can he charge me in dividend that have been reinvested
Thanx
No matter when you started he cannot charge you but if he is then cancel the SIP and start fresh.
Hi
Sorry but the fund was not a SIP but a direct investment
If you invested before the change in rule then he could have but not after that and so check your statement and see what is the amount invested.
Is there any exit load in Mutual funds
Yes. Generally 1% if redeemed before 12 months but can vary from fund to fund.
I need a clarification on ICICI Direct fee charges.
What about Div-Reinvestment charges?
See http://shabbir.in/icicidirect-review/ but remember you should also consult the ICICI helpline number for clarification of fees for your account.
Sir
I have gone through all ur articles. they are very educative and in detail. I am scholar doing research work on the topic “Investors’ Selection Criteria of Mutual Funds.” I collected primary data with questionnaires.Please add any information or advice for my project.
Thank u sir
kasthuri
Research Scholar.
I would love to Kasthuri and let me know how can I add those data.
sir
u can suggest me the concerned websites.I am collecting data from SEBIandAMFI Newsletters. In addition, u may send any data or information whatever u have adding ur opinions, so that i may add in my suggestions of my research work mentioning ur reference.
Sir I am also writing a paper for presentation at National seminar to be held at Pondicherry. Details u can get at http://www.icaindia.info.
Thank u sir
kasthuri.
I always share on my blog my ways of picking the best funds from the category. As an example my best tax saving funds are those that pay high dividend. See here and the reason I like dividend is because I don’t need to invest complete amount to save my tax See how here. You can use any of the information on my blog and use it in your presentation with reference.