Understanding Mutual Fund Brokerage Charges in India

Asset Management Company (AMC) does not levy brokerage charges on ordinary mutual fund investments. However, an investor may incur the following costs:

• Total Expense Ratio (TER)
• Exit load
• Distributor transaction charges
• Stamp duty, and
• Other statutory charges. 

Depending on the investment route, demat account charges or exchange-related fees may also apply.

Mutual funds do not work like stocks, where a broker charges apply every time an investor buys or sells securities. Instead, the costs depend on the type of mutual fund, plan, platform, and transaction. 

Some costs, such as the “expense ratio”, are deducted from the mutual fund scheme's assets and are reflected in its NAV. Other charges, such as an “exit load” (or any applicable transaction charge), can be levied when an investor buys, switches, or redeems units.

Want to know about the various costs associated with mutual fund investments? Read this article till the end to learn about the different charges that may apply when investing in mutual funds.

Brokerage charges are fees paid to a broker or intermediary for executing buy and sell transactions on an investor’s behalf. The charge may be:

• A fixed amount
• A percentage of the transaction value, or 
• May follow another pricing structure set by the broker.

Brokerage is usually associated with stock market investments, where investors buy and sell securities (such as shares or debentures) through a broker.

When investing in a regular/ ordinary mutual fund scheme, there is usually no separate brokerage charge for every purchase or redemption. However, there are several other costs that can influence the amount invested or the return earned. 

Let’s check them out:

When you invest in a mutual fund scheme, you have two primary options:

• Direct Plan: You invest directly with the AMC without any mutual fund distributor.
• Regular Plan: You invest through a mutual fund distributor, such as a bank, a distributor, or other intermediary registered to distribute mutual funds.

The underlying portfolio is the same in both plans, but the difference arises in the distribution arrangement and cost. Let’s see how:

This is one of the primary reason the Regular Plan generally has a higher TER than the corresponding Direct Plan.

So, now you know that a mutual fund scheme does not attract brokerage charges, but an investor may still incur several other costs, such as the 

• Total Expense Ratio (TER)
• Exit load
• Distributor transaction charges
• Stamp duty
• Statutory levies, and 
• Where applicable, exchange-related or demat account charges. 

Among these, the TER is the “recurring cost”, which is deducted from the scheme’s assets and reflected in the daily NAV., a “Direct Plan” have a lower TER because no distributor commission is paid from the scheme’s assets. 

Whereas, in a Regular Plan, distributor commission forms part of the permitted scheme expenses and is paid from the scheme’s assets. Since NAV is based on the scheme’s “net assets”, these expenses reduces the NAV.

For more information, you can visit www.tatamutualfund.com/deshkarenivesh. The Investor Service Centre of Tata Asset Management Pvt. Ltd. is located at Mulla House, Ground Floor, 51, M.G. Road, Near Flora Fountain, Mumbai – 400 001, Maharashtra. The office hours are Monday to Friday, 9:00 AM to 5:30 PM. For assistance, you can also call (022) 6282 7777 from Monday to Saturday, 9:00 AM to 5:30 PM, or email service@tataamc.com

1. What are brokerage charges in mutual funds, and how do they influence returns?

Mutual funds generally do not charge brokerage in the same way as stock or NCDs (Non-convertible Debentures). Instead, one of the primary costs an investor bears is the Total Expense Ratio (TER). 

TER is the annual operating cost of a mutual fund, expressed as a percentage of its daily net assets. It covers expenses such as:

• Fund management
• Administration
• Registrar services
• Audit and Accounting
• Marketing and Distribution (including distributor commissions paid in Regular Plans)

TER is adjusted from the scheme's assets and reduces the scheme's NAV. Generally, a higher TER can reduce the potential return an investor receives compared with a scheme with a lower TER.

2. Do mutual fund schemes charge an “Entry Load”?

As per AMFI, mutual fund schemes in India are not permitted to charge an entry load. For those unaware, an entry load was a fee deducted from the amount invested when an investor purchased mutual fund units. 

For example, if an investor invested ₹10,000 and an entry load of 2% applied, ₹200 would have been deducted as the entry load, leaving ₹9,800 for investment. 

This charge is no longer permitted. (Source: AMFI Investor FAQs)

3. Do intraday trading charges apply to mutual funds?

Intraday trading charges do not apply to mutual fund investments. As per general market understanding, “intraday trading” means buying and selling a security on the same trading day, which is common in stock and derivatives trading. 

In mutual funds, even if an investor submits a purchase and redemption request on the same day, this does not turn the mutual fund transaction into intraday trading.

The applicable NAV is determined according to the scheme's rules and the time at which the transaction requirements are met. Thus, no separate "intraday trading charge" is normally levied.

An Investor Education and Awareness Initiative by Tata Mutual Fund. 

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This communication is a part of the investor education and awareness initiative of Tata Mutual Fund.