Share Market

A mutual fund is a portfolio, or collection, of individual securities (some combination of stocks, bonds, or money market instruments) managed according to a specific objective spelled out in the fund’s prospectus. A mutual fund allows investors to pool their money, and then the fund invests it on their behalf.

Unlike individual stocks, whose value vary minute by minute, mutual funds are priced at the end of each day the market opens, based on what the securities in the portfolio are worth. The price per unit of a mutual fund is recorded as the net asset value (NAV).

Mutual Fund loads are the price of buying a unit. It is a fee charged when an investor makes a transaction in the units of the mutual fund. Most funds sell units at a premium to its underlying net asset value, and purchase them at the net asset value. When the fund company charges a load when it sells units, it is called Sales Load or Entry load. Schemes that do not charge a load are called ‘No Load’ schemes. When it charges a load at the time of buying the units back from the unit holder, it is called Repurchase or “Back-end” or exit load.

Most equity mutual funds charged retail investors an entry load of 2.25% on their investments. This entry load was mandatorily payable irrespective of an investor’s mode of entry. The total amount collected as load for each scheme, as per SEBI stipulations, had to be maintained in a separate account by AMCs and could be utilized to meet selling and distribution expenses. Securities and Exchange Board of India (SEBI) has put a ban on entry-load from August 1 2009. SEBI has stipulated that upfront commission to distributors would be paid by the investor directly to the distributor, based on his assessment of various factors including the service rendered by the distributor.

SEBI has also mandated that of the exit load charged to the investor, a maximum of 1% of the redemption proceeds should be maintained in a separate account which can be used by the AMC to pay commissions to the distributor and to take care of other marketing and selling expenses and any balance should be credited to the scheme immediately. All these decisions are applicable to investments in and redemptions from mutual fund schemes from August 1st, 2009.