A mutual fund is a professionally managed company that collects money from many investors and invests it in securities such as stocks, bonds and short-term debt, equity or bond funds and money market funds.
Mutual funds are a good investment for investors looking to diversify their portfolio. Instead of betting everything on one company or sector, a mutual fund invests in different stocks to try to minimize portfolio risk.
The term is typically used in the US, Canada and India, while similar structures around the world include the SICAV in Europe and the open-ended investment firm in the UK.
What are the expenses incurred in a mutual fund scheme?
There are so many elements involved in providing various services to an investor so that he can achieve their financial goals.
All these elements must be paid for their fruits for the services provided. For this, there is an expense borne by each mutual fund scheme, as a percentage of the corpus of the scheme. The SEBI Regulations impose certain limits beyond which charges are not permitted, even if the fees are higher than the fees charged. According to the aforementioned SEBI regulations, as the size of the fund grows, the maximum expenses that can be charged as a percentage of assets under management (AUM) decrease.
The offer document indicates the maximum allowable expense ratio for each scheme in which you are considering investing. The monthly information sheet and the mandatory half-yearly information allow you to see the actual expenses charged per scheme.