Mutual funds are a popular investment avenue to secure long-term financial growth as they can offer lucrative returns. You may generally invest in these funds through an Asset Management Company (AMC). The AMC appoints a fund manager, and they invest in different securities on your behalf.


However, relying on the fund manager’s expertise and management comes at a cost. It requires you to pay a collection of fees, known as mutual fund charges. Since these charges can impact your returns, understanding them is crucial to keep your costs to a minimum.

Mutual Fund Charges

Some of the common mutual fund charges that may apply to your investment are listed below. 

  • Exit Load

This is a redemption charge that applies to mutual funds units when you redeem or exit before a specified lock-in duration. However, it is not levied if you redeem your funds after the lock-in period. It only applies to open-ended schemes. But, bear in mind that not all schemes levy it.

 

Different AMCs charge different exit load charges, and the rate differs for debt, equity and hybrid funds, too. 

 

An exit load in mutual funds is meant to keep investors from redeeming units in the short term. Thus, it helps keep you invested for longer.

  • Recurring Charge

These are periodic charges that are levied every month, quarter or yearly on your mutual fund investments. They may also apply every day or week. These mutual fund charges include service fees or management fees related to maintenance, guidance, and promotion.

  • Management Fee

This charge accounts for the hiring of fund managers and other experts and relates to their salaries. This is an independent charge that is not merged with other charges.

  • Transaction Charges

This one-time charge is applied when your investment amount crosses ₹10,000 or more, no matter whether it is a lump sum or SIP. It is generally around ₹150. 

  • Switch Price

If you switch between mutual fund schemes, whether in part or in entirety, AMCs hire fund managers to see to the process. This incurs a charge known as the switch price.

  • Account Fee

AMCs charge this mutual fund fee only if you do not maintain the minimum balance in your account. This charge is subtracted from your portfolio. 

  • Distribution and Service Fee

AMCs must maintain communication with you regarding the scheme through email and other channels. The cost for this forms the distribution and service fee.

What is Expense Ratio?

AMCs mention mutual fund charges in terms of an expense ratio, which is an annual fee expressed in a percentage. The expense ratio is charged by AMCs for providing services of managing the scheme, administration, auditing, marketing, registering, paying fund managers, and more. 

 

It is calculated by dividing the net expense in managing the scheme by the total assets under the management. The formula is as follows:

 

Total Expense Ratio = (Net expense for managing the scheme / Net assets under management) x 100

SEBI Guidelines for Expense Ratio Limit

While there is no specific expense ratio cap, all AMCs in India must adhere to the TER limit. This limit is set by SEBI as per Regulation 52 of SEBI Mutual Fund Regulations, which is as follows:

AUM of the scheme

Limit for Equity Schemes

Limit for Debt Schemes

Up to ₹500 Crores

2.25%

2.00%

₹500 Crores - ₹750 Crores

2.00%

1.75%

₹750 Crores - ₹2,000 Crores

1.75%

1.50%

₹2,000 Crores - ₹5,000 Crores

1.60%

1.35%

₹5,000 Crores - ₹10,000 Crores

1.50%

1.25%

₹10,000 Crores  - ₹50,000 Crores

0.05% reduction of TER for every additional ₹5,000 Crores in AUM

0.05% reduction of TER for every additional ₹5,000 Crores in AUM

Above ₹50,000 Crores

1.05%

0.80%

Why do Regular Plans Have Higher Mutual Fund Charges?

To invest in mutual funds, you can take a direct route, buying from an AMC directly without any broker or distributor. This is known as a direct plan. 

 

Alternatively, with a regular plan, you invest through an intermediary, such as an agent. AMCs pay these intermediates a commission for bringing in clients. Thus, the expense ratio for these is higher. Therefore, investing through a direct plan is more cost-efficient than a regular plan. 

 

Now that you know the different mutual fund charges, compare schemes on this basis. Make sure to pay close attention to mutual fund withdrawal charges or the exit load. This will help you maximise profits while keeping the costs to a minimum.


If you want to start investing in best-performing mutual funds with top AMCs, look no further than Bajaj Markets. You can choose from top schemes and pay zero commission to amplify your returns.

FAQs on Mutual Fund Charges

How are mutual fund charges calculated?

AMCs calculate the expense ratio by dividing the total expense related to handling the scheme by the net assets under management. However, these charges need to fall within the TER limit as per SEBI.

Are there any charges related to SIPs?

Yes, all the mutual fund charges, such as exit load, transaction fees, and more also apply to mutual fund SIPs.

Is investing in mutual funds tax-free?

You can get an exemption when you invest in Equity-Linked Saving Schemes (ELSS). Other than this, dividends earned through mutual funds are taxed as per your tax slab.

 

Capital gains on mutual funds are also taxed based on whether they are short-term or long-term. Only long-term capital gains of up to ₹1 Lakh annually can give you a tax exemption.

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