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Understanding Mutual Fund Fees and How They Impact Your Returns

mutual fund

Investing in mutual funds presents an excellent opportunity to generate meaningful returns over the long term. However, while investing, one must weigh the potential returns against the costs involved. Mutual fund fees significantly impact the net returns that you get from your mutual fund investments. Two popular investment options in India are Tata Mutual Fund and Mirae Asset Mutual Funds. Both are beneficial depending upon the investor’s requirements.

Mutual Fund costs can be broadly classified into two types, upfront charges and recurring charges. The upfront charges include entry load, while the recurring charges consist of expense ratio, which includes management fees, marketing and distribution costs, and transaction costs.

Tata Mutual Fund, for instance, has an expense ratio ranging from 0.08% to 2.42%. Suppose you have invested Rs.10,000 in a Tata Mutual Fund scheme with an expense ratio of 2%. The annual charge would be Rs.200 (2% of Rs.10,000). Over time, this could significantly reduce your net returns.

Mirae Asset Mutual Funds, on the other hand, come with an expense ratio between 0.3% and 2.25%. If you make an investment of Rs.10,000 in a Mirae Asset scheme with an expense ratio of 1.5%, the annual cost would be Rs.150 (1.5% of Rs.10,000).

Another charge that mutual funds may impose is the exit load, a fee charged if the investor exits a mutual fund scheme within a specified period. While some funds have no exit load, others might charge 1% if you exit within a year of your investment.

For example, if you invest Rs.20,000 in a Tata Mutual Fund that charges a 1% exit load, and you choose to withdraw the investment within a year, you would be charged Rs.200 (1% of Rs.20,000). This fee would be deducted from your investment value, reducing your net returns.

Therefore, to maximize your returns from mutual fund investments, understanding these charges is crucial. It can help you make an informed choice and align your investments with your financial goals.

Disclaimer: Mutual fund investments are subject to market risks, read all scheme-related documents carefully before investing. It is essential to gauge all pros and cons of trading in the Indian financial market. The examples provided above are for illustrative purposes and may not reflect the current charges of the mentioned mutual funds. Always consider your personal financial situation and seek advice from financial advisors if needed, before making any investment decisions.

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