When you invest in mutual funds, certain fees apply, commonly referred to as mutual fund charges. These costs can influence the overall returns on your investment. This article explains what mutual fund charges are, outlines the different types, and describes how they may affect your investment outcomes. Understanding these charges is important, as it provides a clear view of the total cost involved in mutual fund investing. With this knowledge, investors can make more informed decisions, compare options effectively, and choose funds that align with their financial goals. Being aware of all associated fees ultimately helps in managing investments more efficiently and improving potential returns over time.
What are mutual fund charges?
Mutual fund charges are the fees that investors pay when they invest in mutual funds. These fees are to reimburse the fund managers and for the operating expenses of running a mutual fund. Both one-time and recurring charges are part of the fund's returns. Mutual fund charges play a vital role as an investor and it could have a major effect in reducing the net returns over time.
Types of mutual fund charges
Mutual fund charges can be classified under two major types namely, one-time and recurring charges. The fees cover the expenses for investing in and managing a mutual fund. Here, we will see the various charges investors might incur:
1. One-time charges
One-time charges are the fees charged to an investor once during the first time of investment in a mutual fund. Such charges are levied on the purchase or redemption of units in mutual funds. To prevent surprise charges when buying or selling mutual fund units, it is important to know what these fees are.
2. Load
A load is a fee charged in mutual funds charges when investors buy or sell units. It is a kind of commission that businessmen or brokers who help in making transactions are paid with. Entry load and exit load are two types of load fees.
3. Entry load
It is a fee which investors are asked to pay when they buy units of the mutual fund. This charge is debited from the invested amount, as a result, the investor gets fewer units against his investment. Securities and Exchange Board of India (SEBI) has removed the entry loads in mutual funds, which lets investors buy mutual fund units free from any charges.
4. Exit load
Exit Load is a charge levied on investors when they sell/exit their units of the mutual fund. It is charged when the investor sells his/her unit within a specified period, say one year from the date of buying. Exit loads deter premature withdrawals, and promote long-term investments. Normally, the exit load is 0.5% to 1% of the redemption value.
5. Recurring charges
Ongoing fees are a type of fee charged to mutual fund investors, that they pay for so long as they are holding their investment in a given fund. The recurring fees are taken from the fund's assets on a regular basis, usually annually and affect the NAV of this fund.
6. Management fee
A charge paid to the fund manager for managing your mutual fund's portfolio is management fee. By definition, it represents the portion of the total assets under management that will be paid to a fund manager for their expertise and work in deciding where to invest. Management fees are different depending on the type of fund and its investment strategy. This makes the management of fees with actively managed funds generally much higher than passively managed options, such as index funds.
7. Account fee
The charge imposed on an investor by the mutual fund to maintain their account with it is called an account fee. This charge reimburses investment companies for things like recordkeeping, customer service, and sending your account statements. For example, an account fee may be waived if the investor has a high balance or elects to receive statements electronically.
8. Distribution and service fee
The distribution and service fee, otherwise known as the 12b-1 fee is meant to cover costs relating to marketing and distributing mutual funds through brokers or advertisers. All funds have an expense ratio, and distribution fee is typically assessed annually under the expense ratio. The distribution fee is capped at 1% per annum for equity funds and 0.5% for debt funds.
9. Switch price
This is the cost levied when an investor switches from one mutual fund scheme to another in the same fund house. Typically, this is an amount based on what percentage of the funds are being switched and gets automatically deducted from the investor's account. The switch price discourages investors from switching between schemes encouraging them to stay longer with one fund.
What is expense ratio in regular plans
In regular mutual fund plans, investors pay distribution commissions, which makes the expense ratio higher compared to direct plans. These charges vary depending on the investment scheme selected.
The Total Expense Ratio (TER) represents all operating costs of the fund, including the fund manager’s fees and administrative expenses. In regular plans, TER also includes distribution and service fees, which are essentially commissions paid to intermediaries. Direct plans do not have these additional costs, making them more cost-efficient.
Average AUM refers to the average value of assets managed by the fund over a specific period.
For example, if a mutual fund has an AUM of Rs. 600 crore and incurs total expenses of Rs. 12 crore, the expense ratio is calculated as (12 ÷ 600) × 100 = 2%.
What is expense ratio in direct plans
In direct plans, investors purchase mutual fund units directly from the Asset Management Company (AMC), without involving intermediaries. The expense ratio in these plans includes fund management, administrative, and operational costs, but excludes distributor commissions and service charges.
From 8 August 2025, SEBI removed the earlier Rs 100/Rs 150 transaction charges on SIPs and lump sum investments that AMCs paid to distributors. This change makes direct plans more cost-efficient, as the savings from commissions are reflected in a lower Total Expense Ratio (TER). Over time, even small cost reductions can significantly enhance returns due to compounding.
For example, if a mutual fund with Rs 600 crore AUM incurs Rs 9 crore in expenses, its expense ratio would be 1.5%.
Direct plans therefore offer lower costs and improved long-term returns. Note that ongoing distributor commissions within the TER still continue under revised norms.
Comparison of mutual fund charges in direct and regular plans
Direct and regular plans of mutual funds are different in terms of mutual fund charges. Under direct plans, investors purchase mutual fund units directly from the fund house without involving intermediaries. Hence, direct plans have lower expense ratios since no distributor commissions or brokerage are included in the same. On the other hand, regular plans have intermediaries (brokers or distributors) in between and hence they add extra charges to compensate them. Since direct plans provide a lower expense ratio, it can result in higher returns over the long term as cost savings get passed on to investors. For instance, a regular plan may have an expense ratio of 1.5% while the same fund's direct plans would offer it at say around 1%. This difference in costs matters a lot as lower cost translates to higher returns.
While making this decision, Investors must keep in mind that the direct plan is for knowledgeable and experienced investors who are comfortable enough to invest themselves. Direct plans are cheaper as compared to the regular ones but the latter provides advisory services and personalised assistance by intermediaries, which can be a huge benefit, especially for first-time investors.
| Direct Plans | Regular Plans (via intermediary) |
| Invest directly with the asset management company (AMC) | Invest through a financial advisor or distributor |
| No commission involved, making it more cost-effective | Includes distributor commission, increasing overall cost |
| Requires investors to research and choose funds independently | Advisor offers fund recommendations and market insights |
| Investors select and manage their investments themselves | Fund selection is often guided by the advisor |
| KYC must be completed by the investor independently | Advisors typically help with KYC and related formalities |
| Lower expense ratio and potentially higher long-term returns | Easier onboarding with personalised support and guidance |
SEBI guidelines for mutual fund charges (2026)
The charges applied to mutual funds are regulated by Securities and Exchange Board of India (SEBI) to ensure transparency and safeguard investor interests. To help investors make informed decisions, SEBI requires fund houses to disclose the Total Expense Ratio (TER), which represents the overall cost of managing a fund, including all applicable fees and charges. Additionally, SEBI has imposed limits on management and distribution fees to prevent excessive costs from reducing investor returns.
The maximum TER varies based on the fund’s Assets Under Management (AUM). For equity-oriented funds, it ranges from 2.25% for funds up to Rs. 500 crore, gradually decreasing to 1.05% for funds exceeding Rs. 50,000 crore. Other mutual funds follow a similar structure, with slightly lower limits, ensuring fair and cost-efficient fund management across categories.
Conclusion
Charges in mutual funds have the potential to constitute a considerable portion of investment costs, affecting gross and net returns on the fund. By knowing what charges fall under which category and their respective impact, as well as the regulatory boundaries around each charge, investors will need to understand all they need to exercise a careful investment. When deciding to choose between regular or direct plans, it is important for the investors to know about charges in mutual funds charges and how they matter. To get in-depth details regarding multiple funds and to know about mutual fund charges, you can check out Bajaj Finserv platform which gives detailed information. Additionally, some of its algorithm tools help us understand investments far better making investing in mutual funds so easy and smooth. On Bajaj Finserv platform, you can now compare mutual funds from an extensive list of mutual fund schemes.
