Entry load was once a fee that mutual fund companies charged to investors at the time of investing. This fee was meant to cover distribution costs and was directly deducted from the investment amount, reducing the net asset value (NAV) of the fund for the investor. That is, if you invested INR 10,000 into a mutual fund with a 2% entry load, only INR 9,800 would be invested into the fund.
However, in 2009, SEBI took a proactive step towards investor welfare by banning entry loads on mutual funds. This move has indeed saved investors thousands of crores in expenses since then. It also means that every rupee you invest now goes directly into the fund, thereby increasing the NAV of your mutual fund investment from the very start.
While entry loads are banned, it’s essential to know that commissions are still paid to brokers and distributors, but these are paid by the fund houses, not directly deducted from your investment. These are typically factored into the fund’s expense ratio, which is an annual fee charged by the fund to cover all fund-related expenses, including these commissions.
While the elimination of the entry load is a significant benefit, it doesn’t mean that all mutual funds are created equal. Costs, such as the expense ratio, still impact your returns over time. So, it’s wise to consider these when making investment decisions. And this is where the expertise of Jama Wealth can be of immense value. Our investment advisory service can guide you towards well-managed, cost-effective investment options that align with your financial goals.
So while the absence of entry loads enhances your NAV and the potential for returns, understanding all associated costs of your mutual fund investments still remains a crucial part of informed investing.
