Mutual Fund Charges & SIP Fees: Complete Guide to Costs

Mutual funds are considered one of the most affordable and flexible investment options, allowing investors to choose their own SIP (Systematic Investment Plan) amount and frequency. However, these investments are not completely free of cost and carry certain fees that can lower overall returns.

Let’s understand the charges and fees associated with mutual fund investments that could affect the return on investment.

What Are Mutual Fund Charges?

When you invest in a mutual fund via an SIP, you commit to making regular contributions. In turn, the Asset Management Company (AMC) and its fund managers actively manage your investments to generate returns, charging a fee for their services.

Types of Mutual Fund Charges

The following are the different types of mutual fund charges.

Expense Ratio (Total Expense Ratio - TER)

Expense ratio is the annual fee charged by the AMC to meet the fund’s operating expenses, including investment management, administrative, and compliance costs.

It is reflected in the fund’s NAV (Net Asset Value) on a daily basis. It is disclosed after deducting the applicable expenses.

Passively managed funds, such as index funds, carry a lower expense ratio than actively managed funds. This is because passive funds simply mirror a benchmark index, whereas active managers must conduct research and make constant investment decisions.

Exit Load

Certain funds charge an exit load when investors redeem their units before a pre-defined period. This fee, charged as per the scheme's specified load structure, discourages early withdrawals and helps protect the fund's liquidity and stability, as the fund has to liquidate the underlying securities, which could negatively impact the other investors.

Securities Transaction Tax (STT)

When you redeem or sell your equity-oriented mutual fund units in a transaction on which STT is applicable, you must pay 0.001% as STT. This tax is not applicable on redemption or sale of debt fund units in transactions where STT is not applicable.

GST on Mutual Fund Services

GST (Goods and Services Tax) is applicable to investment management services. GST is included in the fund’s expense ratio. Though not charged separately, it still contributes to the overall costs. It is accounted for as part of applicable scheme expenses.

Stamp Duty

When you switch from one MF scheme to another within the same fund house, the transaction is generally treated as a redemption from the first scheme and a purchase in the second, on which you have to pay stamp duty applicable on the net amount of a mutual fund. Applicable exit loads may also be levied, depending on the scheme.

How to Check Mutual Fund Charges Before Investing

You can check the official Total Expense Ratios (TER) of a mutual fund scheme before investing using the AMFI TER Disclosures portal. Here’s how you can find out the different charges associated with a mutual fund scheme.

AMFI Website

AMCs have to mandatorily update their daily and total expense ratios on the Association of Mutual Funds in India (AMFI) website. Investors can visit the AMFI website to find out the fund’s expense ratio before investing.

Scheme Information Document (SID)

SID is an official document that consists of the fund's investment objective, expense ratio, and exit loads, if applicable.

Key Information Memorandum (KIM)

KIM is an official document provided when purchasing the mutual fund units that details the fee structure of the fund.

AMC Official Website

Investors can visit the specific AMC’s official website to view the updated fact sheet and expense ratios of the mutual fund schemes.

FAQs

Is there any fee to start or set up a SIP?

No, there is no fee charged for starting or setting up a SIP in mutual funds, as there are no joining or registration fees.

What is an Expense Ratio in mutual funds?

The expense ratio is the annual fee charged by the AMC for managing your investments, which covers its operating costs, and is expressed as a percentage of the scheme’s total assets under management.

Do I have to pay a fee if I withdraw my mutual fund investments early?

Certain mutual funds charge an exit load when you withdraw your mutual fund investments before the pre-defined period.

Are Direct Plans cheaper than Regular Plans?

Yes, direct plans are cheaper than regular plans as you buy mutual fund units directly from the AMC without paying commission to the distributor, lowering the investment costs.

Will my bank charge me if my SIP payment fails due to low balance?

Yes, your bank will charge a penalty fee if your SIP payment fails due to insufficient funds. This includes ECS or NACH return charges, which vary based on your bank’s policy.