Buying Mutual Fund? What Charges you pay after 1 August after SEBI orders

After a long time, a good news has come to the investors in the Indian Mutual Funds Market. SEBI or Securities and Exchange Board of India has directed all Mutual Fund houses and brokerages not to deduct marketing and distribution charges from the investment made by subscribers.


What has changed after SEBI's instructions?
Let's say you wanted to invest 10,000 in a Mutual Fund of your choice and it had an entry load of 2.25%. That would mean that an amount of 225 would be deducted from your 10,000 and 9775 only would be your actual investment.
However, after the recent change introduced by SEBI, your entire 10,000 will be invested in the Mutual Fund.

Does this mean I dont have to pay any charges for investing through my broker or agent or Mutual Fund Distributor?
No. That is not the case. Many people are getting the impression that they may not be required to pay anything after the SEBI's directive. However, what this order means is that if you write a cheque for 10,000, then all your 10000 will be going to your investment in Mutual Funds. You will still HAVE TO PAY Brokerage and distribution cost, but that might vary depending upon your broker.
This charge will be reflected and charged seperately to you.
The order for SEBI is not to eliminate the charges, but to involve transperancy in the investment process. Please bear in mind that you will still have to pay the charges for making the investments in mutual funds, though this will be charged seperately by your broker.

Is there an example for this?
Yes. Say ICICI Direct has come out with its variable brokerage plan after the order from SEBI. As per the plan, if you have a total cumulative holding in Mutual Funds with ICICI Direct at 8 Lakh or more, then you dont need to pay anything either for SIP investments or lumpsum investments.

However, if your Mutual Fund holdings are less than 8 Lakhs, than you will have to pay per transaction:

For SIP investments - Rs. 30 per transaction

For Lumpsum Investment - Rs. 100 per transaction

Will this new scheme really help?
It actually depends upon you and your broker and his charges.
If your broker charges high amount, then you may be a looser on that. But if you can find a good broker who charges low rates, then you can save a lot of money. So you will have some choice. However, you will now have to face and evaluate various conditions set forth by the broker. For eg. For Zero charges, ICICIDirect requires a minimum of 8 Lakh Rs. investment. That is a big amount for any investor.

It is good because now you will know what charges you are paying for investing in Mutual Funds. It will give respite to investors in Mutual Funds who were not keeping a close eye on the Mutual Fund Charges, which can build up to a significant amount in the name of distribution charges, marketing charges, fund management charges, entry load, etc. Now, the cheque that you write for the Mutual Fund Investment will ensure that all your money value written on the check actually goes into your investment