What are the expenses associated with mutual fund investments
Introduction:
Did you know that the Indian mutual fund industry has crossed a whopping ₹58 lakh crore in Assets Under Management (AUM) in 2025? This staggering figure isn’t just a number, it’s a reflection of growing investor trust, financial awareness, and the increasing shift towards market-linked investment avenues in India.
From small-town savers to urban professionals, more and more Indians are exploring mutual funds to meet their financial goals. Whether you’re planning your child’s education, building your retirement corpus, or simply saving for that dream home, mutual funds offer a structured path to wealth creation.
However, one aspect that often gets overlooked, especially by beginners, is the cost of investing. If you’re planning a mutual fund investment plan for beginners, understanding these costs is crucial.
In this article, we’ll discuss the different types of expenses associated with mutual fund investments, their impact on your returns, and share tips to keep them in check.
Why Understanding Mutual Fund Expenses Matters?
When it comes to investment in mutual funds, most beginners focus on only two things: returns and risks. What they generally miss is the third factor that can quietly chip away their wealth is expenses.
Mutual fund expenses are the cost you have to incur to let a professional manage your investment. These costs aren’t clearly visible, but can directly impact how much profit you will actually take home.
Let’s take an example:
There are two investors, A and B, and both invest ₹10 lakhs in different mutual funds offering the same 12% annual return.
Fund A has an expense ratio of 1.5%, whereas Fund B has an expense ratio of 0.5%.
Over 10 years, Investor A will end up with ₹19.55 lakhs, while Investor B will walk away with ₹21.03 lakhs – a difference of nearly ₹1.5 lakhs, simply due to fund expenses.
Now imagine this difference over 20–25 years! The impact compounds over time.
That’s why understanding the different expenses, like expense ratios, exit loads, transaction fees, and taxes, is important.
If you planning for a mutual fund investment in India, here are some of the costs you need to be aware of:
1: Expense Ratio
The expense ratio is the percentage of a fund’s assets that are chipped due to the fund’s operational costs. These costs include fund management fees, administrative charges, marketing, auditing and more.
Here are the different types of Expense Ratios:
- Regular Plan
- Direct Plan
Example: If a fund has a return of 12% and an expense ratio of 2%, your net return would be 10%.
Regulatory Limits by SEBI:
- For equity mutual funds: capped at 2.25% for the first ₹500 crore of assets.
- For debt mutual funds: usually between 0.5%–1.5%.
2: Entry Load – Abolished but Still Important to Know
The entry load is a one-time fee that the investors have to pay when entering a mutual fund scheme. However, SEBI abolished entry loads in 2009 to protect investors. Therefore, today there are no entry loads in any mutual fund in India, but some platforms may still charge platform onboarding or advisory fees.
3: Exit Load
The exit load is a fee charged if you redeem your investment before a certain period. This is designed to discourage early withdrawals.
Common Exit Load Structures:
- Equity Funds: 1% if redeemed within 12 months
- Debt Funds: Varies based on duration (can be 0.25% to 1% if redeemed within 3–6 months)
- Liquid Funds: Usually have no exit load if held for more than 7 days
Why It Matters:
If you are investing in a mutual fund for long term investment, exit load may not concern you. But if you’re a short-term investor, it can reduce your returns unexpectedly.
4: Taxation:
Taxation is not a direct charge by the fund, it can significantly impact your mutual fund returns.
For Equity Mutual Funds:
- Short-Term Capital Gains (STCG) (if held < 1 year): 15%
- Long-Term Capital Gains (LTCG) (if held > 1 year): Tax-free up to ₹1 lakh per year, then taxed at 10% without indexation.
5: Transaction Charges
Transaction charges is the payment that the SEBI allows distributors to charge as a one-time transaction fee, and is generally deducted from the investment amount.
- ₹150 for first-time mutual fund investors
- ₹100 for existing investors
However, this is applicable only when you invest through a distributor and for amounts above ₹10,000.
6: Fund Switching Charges
There are some investors who switch between schemes to chase performance or rebalance their portfolios, these investors may have to pay some amount disguised as exit load or tax implications.
7: Additional Expenses You May Overlook:
There are few other expenses that you must consider:
1) GST on Management Fees: Goods & Services Tax (GST) at 18% is levied on fund management charges and included within the expense ratio.
2) Platform Fees: If you use a robo-advisory or third-party investment platform, they might charge an annual fee or a percentage of assets under advisory (AUA). Always check the fine print.
3) Advisory Fees (in case of SEBI-Registered RIAs): If you hire a best mutual fund advisor in India, they may charge you:
- A flat annual fee (₹10,000–₹25,000)
- Or a percentage-based fee (up to 2.5% of assets under advice)
How to Keep Mutual Fund Costs in Check?
While you can’t eliminate all mutual fund expenses, you can definitely minimize them with the right strategies. Lowering costs ensures more of your money stays invested and compounds over time, especially important if you’re aiming for a mutual fund for long term investment.
Here’s how you can be smart about managing these costs:
- Choose direct plans over regular plans
- Compare Expense Ratios Before Investing
- Avoid Unnecessary Churning
- Invest Through SIPs
- Work With a Fee-Only Advisor
- Understand Tax Implications
- Track Portfolio Overlap
Conclusion:
Mutual funds are a powerful tool for wealth creation, but only when you’re aware of what you’re paying for. Whether you’re just starting your mutual fund investment in India or planning a mutual fund for long term investment, understanding costs can improve your returns significantly.
If you are seriously planning to invest, consider partnering with the best mutual fund advisor in India, like Mentor Wealth, who not only helps you grow wealth but also helps you save money on unnecessary costs. With the right advice and a cost-efficient approach, mutual fund investing can become simple, effective, and rewarding.
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