Mutual Fund Charges

Investing in mutual funds involves more than choosing a scheme and investing money. Investors may come across different mutual fund charges during the investment journey, including expenses related to managing the scheme and certain transaction-related costs. These Charges In Mutual Funds can affect the amount invested, the value received on redemption, or the overall returns earned from the investment. The type and amount of a charge depend on factors such as the scheme, investment mode and applicable regulations. Understanding these charges before investing can help you assess the overall cost of a mutual fund and make informed decisions. Common costs include the expense ratio, exit load and applicable statutory charges. Knowing when each charge applies can also help you compare schemes more effectively and understand their impact on your investment.

What are mutual fund charges?

Mutual fund charges are the fees, expenses, and applicable statutory costs related to investing in and managing a mutual fund. Depending on the charge, the cost may be deducted from your investment, applied when you redeem units, or paid by the scheme and reflected in its NAV.

Types of mutual fund charges

Mutual fund charges mainly fall into two categories: one-time charges and recurring charges. One-time charges apply to specific transactions, while recurring charges are incurred regularly during the investment period. Understanding charges in mutual funds helps you assess the overall cost of investing. These MF charges or scheme charges can vary depending on the fund and transaction.

One-time charges

These charges are applied only when a specific transaction takes place, such as buying or redeeming mutual fund units.

Recurring charges

These are ongoing costs associated with managing and operating a mutual fund scheme and are generally reflected in the fund’s expenses.

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.

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 Broking website  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 Broking website, you can now compare mutual funds from an extensive list of mutual fund schemes.

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