I have never purchased units of a mutual fund (MF) scheme. From what I have read, there are various costs involved in a scheme and, most brokers don’t take enough care to move the funds to right portfolios after the initial account creation. Where do I get started?
MLF’s Reply: The only recurring fee you have to pay is deducted from your corpus in the form of expense ratio which can range from 1.5% to 3%pa (per annum) for equity schemes. Transaction charges and fees charged by distributors for additional services would be separate. However, if you choose to invest on your own, without the help of a distributor, the only cost to you would incur will be expense ratio. Enumerated below are details of other fees chargeable by MF schemes.
Transaction Costs: If you purchase mutual fund units through your distributor and if your distributor has opted to levy ‘transaction charge’, then for existing investors, Rs100 will be charged as ‘transaction fee’ per subscription for investments over Rs10,000. For new investors, the charge would be Rs150 for every subscription. If your distributor has opted not to accept transaction charges, or if you invest directly with the fund house, these charges will not apply.
Exit-load: Certain schemes require a minimum investment period which can range from a few days to a few years. If you wish to withdraw before the stipulated period, the scheme imposes an exit-load which could range from 0.50% to 3% of the amount withdrawn.
There are many online websites that help you to choose. Several factors go into selecting a scheme. One needs to look for consistent performance, low expense ratio, portfolio composition, etc. Along with this, you need to look at your investment horizon, current market valuation, age and risk profile before selecting a mutual fund scheme. Brokers have nothing to do with this. You can do it yourself, or take the help of a knowledgeable person.
What is switch in mutual funds?
MLF’s Reply: Switch, in mutual funds, is the transferring of money from one scheme to another scheme of the same fund house. The amount is transferred internally. This saves investors from transferring the amount into their bank account and then reinvesting in another scheme. For example, if the current value of your investment in HDFC Liquid Fund is Rs5,000 and, from this, you would like to invest Rs1,000 in HDFC Equity Fund, you would have to switch Rs1,000 from HDFC Liquid Fund to HDFC Equity Fund.
What factors should we consider while selecting equity mutual funds? Can NAV (net asset value) be the deciding factor?
MLF’s Reply: There are many performance parameters one can look at while selecting a scheme. However, just looking at the current NAV cannot be a deciding factor. Mentioned below are the factors Moneylife uses to judge top-performing schemes:
We consider only those schemes with a track record of five years or more and a minimum corpus of Rs100 crore.
We analyse the performance of the scheme relative to its benchmark and other schemes in the category, over the past 20 quarters, or five years. This gives us a list of consistently well-performing schemes. We then shortlist schemes on the basis of their portfolio composition (company and sector allocation), to check their diversification and expense ratio, since costs are important too.