What is Expense ratio, entry and exit load in Mutual Funds

Taking our understanding of mutual funds forward, today we will discuss about expense ratio and Entry and Exit loads in MF.

What is expense ratio in a mutual fund scheme?

The fees collected by an asset management company(AMC) from an investor every year till he holds his investment in the AMC's mutual fund scheme are called expense charges and are deducted on a daily basis before arriving at the net asset value (NAV). Expenses ratio is higher for funds that are actively managed i.e. constantly watched and tweaked keeping in view the constant changes in the factors that affect the businesses in which the pool of funds has been invested in and expense fees are lower for funds which are passively managed i.e. reviewed once in a while; as such funds are left to perform similar to an index or a sector or are not affected much by the changes happening around. Expense ratio also depends on whether one is opting for a direct plan or a regular plan of the same scheme.

Refer the diagram below to understand how expense ratio affects the yield  from the mutual fund and why you should opt for less expense ratio scheme.

Expense ratio in MF explained with an example

What is entry and exit load in a mutual fund scheme?

Entry load is a one-time charge that an AMC deducts before allotting NAV to investors which accounts for sales and distribution charges. These may be absent in cases when the AMC doesn't incur such expenses. Exit load is deducted from the final NAV at the time of redeeming from a fund or transferring to other funds before a specific time period as mentioned in the scheme particulars.

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