Are Mutual Funds Costly?

Mutual funds are becoming more and more popular now days, as it provides benefit of diversification, liquidity, professional management of funds and so on. But along with such benefits there are certain drawbacks of mutual fund. But cost of investment while investing in a mutual fund scheme is quite high and is one of the major drawback. It is important that the investors should know the expenses which they have to face while investing in mutual fund.

 

Here are some charges which investor should consider while investing in mutual fund.

1)    Entry load: Entry load is charged while entering the scheme. It is charged in order to cover the cost of distribution. However from 2009 entry loads are not charged by the mutual fund companies.

2)    Exit Load: Exit load is a fee or an amount charged from an investor for exiting or leaving a scheme. The main aim behind collecting exit load from the investor is to discourage them to not to sell off the fund units. Currently the exit load is 1.0%

3)    Management Fees: Management fee is charged by the fund manager who manages the funds of the investors. Fund manager charges this fee for their expertise and time for selecting the stocks and managing the portfolio.

4)    Reinvestment Fees: This fees are charged when the investor reinvest the distribution such as dividend back into the fund. Re-investment charges differs from fund houses to fund houses.

5)    Exchange Fees: Exchange fee are charged when an individual switches from one fund to another fund within the same fund house.

6)    Custodian Fees: A person has to open an Demat account in order so that he can hold his share in it, similarly when he/she invest in mutual fund the fund units are keeped in the custodian in order to hold and transfer the fund units. As custodian is the third party between the fund house and investor the fund houses charges this fee from their investors.

These are some charges which the investor has to pay when he/she invest in mutual fund. If the charges are high it will affect the return of the investor and one will end up making less profit. Therefore the investors should go through the offer documents before taking any investment decision. 

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