No entry load for Mutual Funds (MFs) – What does it mean for you?

This article demonstrates the benefit of having no entry load (for MFs) on a long term investment.

Usually, an entry load of 2.25% is charged for all investments in an MF. The
entry load is charged largely to meet marketing expenses of a fund house,
a large portion of which is the commission given to agents and distributors.

Agents get this commission, because they claim that they advise investors
to invest in specific schemes depending on their individual situations. This
is rarely a case though, as most of the MF agents are seen pushing schemes
that provide them a higher commission – like MF New Fund Offers (NFOs).

Apart from this, due to the availability of information and customized
investment advice on the internet (like on www.RaagVamdatt.com), many investors
are in a position to decide on the MF scheme themselves. In these cases,
investors can buy directly from a fund house instead of going through an agent.

When an investor buys directly from a fund house, it is a transaction
between the investor and the fund house, with no intermediary in between.
Thus, there is no commission involved, and therefore, it is logical not to
charge an entry load in this case. So, it is a very wise move.

Now, how does it impact your investments?

We know that compounding is a very powerful weapon. (Please
see “Goal Based Investing” to read
more on this). When an investment is made for a long term, even
a small difference in the invested amount can make a huge difference in
the end result due to the effect of compounding.

When an entry load is charged, it has a direct impact on the amount
invested – the entry load is deducted from your cheque before the money
is invested. Thus, if you are investing Rs. 1000, and entry load is 2.25%,
only Rs. 977.5 is actually invested on your behalf.

It looks like a small difference, doesn’t it? Let’s see how compounding
works here using numbers.

Thus, we can see that for a long term investment, the removal of entry load
can make a big difference.

So, if you know the MF scheme you want to invest in, go ahead and deal
directly with the fund house – it would improve the return of your
portfolio without any extra investment or without taking any risk!

Happy investing…

Other articles you might be interested in:

• SEBI removes entry load for open ended Mutual Funds (MFs)
• Have you “invested” in jewellery?
• Real Estate Investment Trusts (REITs)
• ELSS is not for someone else
• Are ULIPs a costly form of term insurance plus MF investments?
• Shine matters – Gold is not old
• Best Performing Mutual Funds (MFs) of 2007
• Goal Based Investing
• Direct investment in Stocks versus Mutual Funds (MFs)?
• Tax sops for Post Office schemes, bonus on PO MIS
• National Savings Certificate (NSC)

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