How much does investing in Mutual Fund really Cost you?

There was a time when the best things in life were free-love and fresh air. No longer; everything in this world comes at a cost. Mutual Funds also come at a cost. But since we don’t pay for them separately we don’t realize just how much  they cost. In fact many people don’t know that they pay for it every year as long as they hold it. The main point is not that it costs, but how much and how is it charged.

As consumers we compare the price of anything we buy with the value we enjoy and when that is in favour of value we purchase it. Prices are therefore made very visible by sellers to aid this comparison and the purchase. In the case of regular plan mutual funds, suppose you write a cheque for Rs 1 lac, about Rs 3000 (@ 2.5% plus 18% GST) is first deducted as the cost and Rs 97,000 worth of units are given to you. Then in the following year if you held the fund you a similar amount is withdrawn from your net-worth. So a lesser amount than what you put is earning returns for you.

However, the return the industry publishes is on the total amount in this case Rs 1 lac. In effect you get a lower return than what your money actually earned. Like we said the issue is not that you are required to pay a price for the service, it only that it is done in a manner that short circuits the buyer’s normal process of evaluating the price and the value equation. And even if you know the price you paid, you may not realize the cost you have incurred. So, let’s look at this more closely

What do you pay for the services and how much does it...........Read More

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