Stop Paying Entry Load, Go Direct

photo by coloros

In January 2008 SEBI abolished entry load on Indian equity funds if you’re investing directly. However, it is mandatory to pay an entry load of 2.25 percent if you transact through intermediaries, better known as distributors who take this charge to service investors.

Suppose you are investing Rs 1000 and the NAV (net asset value) of the scheme that you are buying is Rs 10. This NAV is multiplied by 1.0225 (2.25 percent of Rs 10) to factor in the entry load and operative NAV for you becomes Rs 10.225 (Rs 10 as the actual NAV and Rs 0.225 as the entry load).

This takes the number of units allocated to you to 97.79 and the money invested is Rs 977.50 instead of Rs 1000. The remainder Rs 22.50 (1000 less 977.50) goes to the distributor and to meet other administrative expenses incurred by the mutual fund company. However, if you invest directly through that mutual fund company’s website then the whole Rs 1000 is invested and you hold 100 units.

While you lose this money upfront, this charge literally multiplies. For example, even on a conservative basis, Indian equities can double in the 5 years. Since 2.25 percent has been deducted upfront and not been invested, what you have lost is 4.5 percent (double of 2.25 percent) from your returns.

Consequently, it is a simple decision that you should invest directly and not pay this significant charge. If you can choose your fund on your own and want to save on entry load you have these options:

a.    Visit the AMC/CAMS/ Karvy investor centre, fill the transaction form, and also fill the KYC (know your client) form [if you’re investing Rs. 50000 or more].

b.    You could even download the transaction form, print it, fill it and mail (post) it along with your cheque/demand draft to the Mutual Fund’s Investor Centre. You’ll also need to attach a photocopy of your PAN card (must be attested).

c.    Invest online through the mutual fund’s website.

I personally prefer Option C because it gives me the freedom to invest in mutual funds whenever I wish. Investing online also saves me time — if I were to go to the Mutual Funds office I’d spend minium 60 minutes getting there.

I wanted to invest in one of Fidelity’s mutual funds so this time I chose to do it online.

To begin with, I visited Fidelity’s website to find out the procedure for investing online through their website.  Found out that I should have an online account with them to be able to invest online. So, I filled out an online registration form and at the end of the registration process they email you a copy of the Registration Form (pdf) which is pre-filled with data you entered in the online registration form. You (or anyone you can send) need to either visit the Mutual Fund’s office (Investor Centre) to submit your form or you could mail it to them.

I had a meeting on Friday and Fidelity’s office is just a 5 minute walk from that place so I carried along my user registration form and related documents to submit it — hoping the process would be completed in a day or two and will be getting my online account ready to use I was told it takes around 15 days to get the online account setup process to be completed. How sad!

As I was there and did not want to wait for another 15 days to make my investment I picked up a transaction form, filled in and along with the cheque made my submission over the counter. It hardly took 5 minutes to complete the process but the sad part was — the time — it was 15:10 hrs which meant I could not get Friday’s closing NAV (cut off time is 15:00 hrs). Now my transaction form will be processed on Monday’s closing NAV.

Anyways, I look forward to receiving my Fidelity online account details in about 2 weeks.

For your convenience, listed below are website links of those mutual funds who are able to offer online investing to their customers.

Birla Sun Life Mutual Fund
CAMS Online Transaction Service
Fidelity Mutual Fund
Franklin Templeton Mutual Fund
HDFC Mutual Fund
ICICI Pru Mutual Fund
Karvy Online Services
Kotak Mutual Fund
Mirae Asset Global Investment Mgmt (India) Pvt. Ltd.
Principal Mutual Fund
Quantum Asset Mgmt Co. Pvt. Ltd.
Reliance Mutual Fund
SBI Mutual Fund
UTI Mutual Fund

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Author: Austin Comments: 3 comments Date: 4 Oct 2008
Categories: Mutual Funds Tags: , , ,

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