Mutual Fund Charges on WebNotes

Entry load in mutual funds, historical note

Tue, 12 May 2026 00:00:00 +0000

Entry load (also called front-end load or sales load) was a one-time charge deducted from an investor’s purchase amount before mutual fund units were allotted, effectively reducing the number of units received for a given investment. The charge was expressed as a percentage of the investment amount and was primarily used to compensate mutual fund distributors for their sales effort. SEBI abolished entry loads on all mutual fund schemes in India with effect from 1 August 2009, making it a purely historical instrument.

Exit load in mutual funds

Tue, 12 May 2026 00:00:00 +0000

Exit load is a fee charged by a mutual fund to an investor upon redemption of units before a specified minimum holding period has elapsed. It is expressed as a percentage of the redemption amount or the applicable NAV, and it is deducted from the redemption proceeds before the net amount is paid to the investor. Exit loads serve two purposes: they deter short-term redemptions that destabilise the fund’s portfolio and impose transaction costs on remaining unitholders, and they provide a modest income to the scheme that partially offsets redemption-related costs.

GST on mutual fund management fees

Tue, 12 May 2026 00:00:00 +0000

Goods and Services Tax (GST) on mutual fund management fees is an 18 per cent GST levied on the investment management and advisory fee charged by an asset management company (AMC) for managing a mutual fund scheme. GST on fund management is classified as a financial service under the GST framework and is embedded within the total expense ratio (TER), meaning it does not increase the TER beyond the published ceiling but reduces the net fee retained by the AMC after GST payment.

Stamp duty on mutual fund units

Tue, 12 May 2026 00:00:00 +0000

Stamp duty on mutual fund units is a statutory charge levied at the time of purchase or switch of mutual fund units in India, introduced by an amendment to the Indian Stamp Act, 1899 through the Finance Act, 2019 and made effective from 1 July 2020. The rate is 0.005 per cent of the investment amount on purchases and on the notional value of units on switches. Stamp duty reduces the number of units allotted to the investor and is credited to the state government of the investor’s registered address.

STT on equity-oriented mutual fund redemption

Tue, 12 May 2026 00:00:00 +0000

Securities transaction tax (STT) is a direct tax levied on the value of transactions in specified securities, including units of equity-oriented mutual funds. For mutual funds, STT applies on the redemption of equity-oriented fund units at the rate of 0.001 per cent of the redemption value. It was introduced by the Finance (No. 2) Act, 2004 and is administered under Chapter VII of that Act.

STT is a Central Government tax collected at the point of transaction by the AMC (acting as a responsible person), and is credited to the Consolidated Fund of India. It is separate from, and in addition to, capital gains tax on the same transaction.

Total expense ratio in mutual funds

Tue, 12 May 2026 00:00:00 +0000

The total expense ratio (TER) is the annual charge that a mutual fund levies on its scheme’s assets to recover all costs of running the fund, expressed as a percentage of the scheme’s average daily net assets (AUM). It is the single most important cost number investors should examine before selecting a fund, because it is deducted from returns every day before the net asset value (NAV) is published.

What the TER covers

SEBI regulations (Regulation 52 of the SEBI (Mutual Funds) Regulations, 1996, as amended) permit a mutual fund to recover the following expenses from scheme assets: