What are the charges for investing in mutual fund?
Mutual Fund houses incur expenses such as mutual fund management costs, marketing, advertising, brokerage, and commission to selling agents or distributors.
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What are the various charges levied on mutual fund investments? - M Satya Srikant, Hyderabad
Mutual Fund houses incur expenses such as mutual fund management costs, marketing, advertising, brokerage, and commission to selling agents or distributors. Mutual funds usually levy two types of charges on mutual fund investors, and these charges are known as entry load and exit load. Mutual Fund Asset Management Company (AMCs) deduct charges from investors when they join (entry load) and leave (exit load) a scheme. AMCs in the past had the practice of charging both entry and exit loads from investors.
For instance, an investor subscribes to a mutual fund scheme with Rs10,000 at Rs 10 per unit with an exit load of 2.25 per cent. The Asset Management Company deducts Rs 225 towards entry load and allot units for the remaining amount, equivalent to Rs 9775. However, with effect from 1 August 2009, the Securities and Exchange Board of India (SEBI) has done away with the entry load for mutual funds. The SEBI has mandated that no entry load can be charged for any mutual fund scheme.
Currently, only exit load for mutual funds continues. Depending on the scheme, some mutual fund management companies chose not to impose an exit load. The rate of exit load varies according to the MF scheme and AMCs. However, if levied, the exit load rate should be in line with the SEBI prescribed limits. Some AMCs impose an exit load on investors who redeem a scheme within a short tenure/period. Arguably, the exit load is levied to discourage early redemptions by the investors from mutual funds schemes. In a way, exit load is a penalty for early redemption.
Exit load is not mandatory, and not all MF AMCs charge an exit load. Every Mutual Fund house (AMC) must adhere to the SEBI's guidelines. Accordingly, the SEBI has mandated that the details of the cost of operating a mutual fund be intimated to its active investors in order to make AMCs' accounts and operations as transparent as possible. By way of illustration, we may look at this example to see how the exit load works: An investor bought units of XYZ Mutual Fund for Rs 100,000 in February 2020. His investment doubled by January 2021. The AMC levy a one per cent exit load on those who redeem within one year from the investment date. Exit load is calculated on the net asset value (Number of units x NAV x Exit Load per cent). The investor will receive Rs 198,000 after the 1 per cent exit load, if the investor sells all the units (holding in the mutual fund scheme)
Can I withdraw prematurely from the NPS corpus, and what are the tax benefits under the new tax regime? - T Anil, Visakhapatnam
The National Pension System is not only a retirement benefits scheme, but also one of the best investment products that come in handy for reducing income tax liability. Those who have opted for the 'New Tax Regime' cannot avail of the tax benefits under various sections under 80C towards contributions to the NPS fund. Until 2018 the NPS was taxed at maturity (Exempt Exempt Taxable). Budget 2018 accorded NPS the EEE status.
This means the proceeds from the National Pension System will not be taxed at maturity. To encourage investment in NPS, section 80CCD(1b) of the Income Tax Act allowed an additional deduction of Rs 50,000 over and above deduction u/s section 80C. The additional tax deduction under section 80 CCD (1b) has become a lucrative option to the taxpayers. The contributions investors make in an NPS account are locked in until the age of 60.
The contributions to the Tier-1 NPS account must be at least Rs 1,000. One can open a Tier-II account with Rs1,000. One single contribution in a financial year is mandatory. The minimum contribution is Rs 250. Transfer of funds from a Tier-II to a Tier-I account is allowed. Contributors to NPS accounts may make premature withdrawals subject to prescribed terms and conditions: The contributor can do so after the third year of opening the NPS account. The total amount of withdrawal cannot be more than 25 per cent of the subscriber's total contribution value. Premature withdrawals will be allowed in the case of children's education, marriage, and treatment of critical illnesses, and purchase of land and residential property. Not more than 20 per cent of the corpus can be withdrawn before the age of 60 or before retirement in the event of partial withdrawal other than the purpose specified in the NPS rules.
(The author is a SEBI licensed Research Analyst. The alumnus of the Indian Institute of Foreign Trade (IIFT), he had held leadership roles at National Geographic, Reliance Radio Television Luxembourg, STAR TV, etc)
