Share Market

A mutual fund represents a pool of financial resources obtained from individuals and companies, which is invested in the money and capital markets. This process represents another method for economic savers to channel funds to companies and government units that need extra funds. Mutual Funds, being a good opportunity of investment have become very popular in the recent past.

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.

A load fund charges an up-front fee and is used as a commission payment for sales representatives. These fees can be as high as 8.5 percent. A no-load fund does not charge a sales fee, although a small annual fee can be charged to cover certain administrative expenses. This small fee, which is called a 12b-1 fee, usually ranges between 0.25 and 0.35 percent of assets.

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.

Mostly people tend to advice on avoiding investing on load funds. But many studies have shown that both kinds of mutual funds almost tender the same return. Like the names suggest, they only differ in the fees, charged.

It is always wise to understand the costs properly to avoid losses. We should always be aware of the tough financial jargons used by the professionals and investors so that investing for us becomes smooth and meaningful. It only takes some time to brush up our financial knowledge and then start investing like a pro!