If you invest in mutual funds, it is essential that you understand the associated costs. There are a variety of costs associated with mutual fund investments, which shave off a few percentage points off the investment’s returns. Knowing about these costs is critical to your long-term wealth creation. Not knowing them could mean that you miss your investment goals by wide margins.
Let’s take a look at them, and also understand how the arrival of the Goods and Services Tax will impact these costs.
Every fund mentions its Total Expense Ratio. This is a sum of all expenses incurred towards fund management, brokerage, auditing, operational requirement etc. Essentially, this is your payment to the asset management company to buy, hold, and sell securities on your behalf.
Most varieties of mutual funds impose a charge to discourage investors from making premature redemptions of their units. The quantum of this load, and the tenure for which it is applicable, will be mentioned in the investment scheme document.
GST Impact on Mutual Funds
Investing in mutual funds is going to get slightly more expensive with the arrival of GST. Currently, the expense ratio for mutual funds usually varies between 1.25% and 2.75%. With the revised GST rates, this would increase by 4-7 basis points. This is a marginal increase and investors need not worry about it at the moment.
Why You Must Pay Attention to Costs
You need to research the costs of your investments well in order to understand your benefits accurately. Even a small difference of just 0.5% in your costs could mean a lot of money out of your pocket in the long term.