While investing in small-cap mutual funds, investors should always check the various charges levied on them while investing, as these charges can burn a hole in your pocket.
This is the fee that is charged when the investor exits a mutual fund and is generally 1% of the total sum. One has to check that the exit load should not be in the excess of 1% before investing. There used to be another charge known as entry load, which as per the latest SEBI orders can not be charged anymore.
A transaction fee is charged whenever the money is deposited for the use of investment in a mutual fund. For example, in the case of an SIP, a transaction fee is charged every time there is a transaction and in the case of a lump sum payment, it is charged just once. This amount is usually between INR 100 and INR 150.
This is the fee charged by the asset management company and is usually a percentage of the net worth of the mutual fund. This is the total expense of managing a mutual fund and has to be paid yearly by an investor, hence an important factor to be taken into consideration.
SEBI has defined guidelines for the expense ratio, and now it can not exceed a particular limit. For instance, for an actively managed fund, the expense ratio should be around 0.5% to 0.75%, though the upper limit can be 1.05%.