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Mutual Funds

No Entry loads: Charges for online investing

With the introduction of no entry loads on mutual funds, the distributors have started to charge customers something; what happens to the online sites?

I’d mentioned that distributors would get a lot more difficult to handle, and that you should look for ways to invest by yourself in the no-load regime. Yet, it may be useful to consider what existing distributors are charging.

Some seem to charge an annual fee, some others charge a transaction fee, and some a bit of both. This pays for their intermediation costs.

Most common are the internet web sites that give you access to online investments. I have two MF online accounts – Reliance Money and HDFC Bank’s netbanking. And I know of ICICI Direct. What has changed?

  • HDFC Netbanking: No per-transaction charges. A fee of Rs. 100 per quarter applies. This is huge for someone who has no further plans to invest, and will have less than Rs. 20,000 in the account (the annual charge works out to 2%, even if you don’t do a single transaction). But for someone who’s investing 1 lakh a year, it is useful, as I will demonstrate later.
  • ICICI Direct: Their fee structure is a flat Rs. 100 per lumpsum transaction, for both equity and debt funds. When your portfolio reaches 8 lakhs, no further charges. This is good for the folks that have large portfolios. But it’s huge for those that have small portfolios or want to buy debt funds (entry load on debt funds was anyhow zero)
  • Reliance money charges 1% to 2.5%, depending on how much you buy per transaction (25 lakhs to <5 lakhs), for only equity funds.

Now what are the costs of doing it yourself? Not all mutual funds have online investing ability, and even for those there’s a pretty big waiting time to register, plus the forms to fill and submit etc.

You could go to the CAMS office and drop a filled form/cheque etc. every time. I did a quick calculation of how much petrol it will cost to go to my nearest CAMS center (Sector 14, Gurgaon) which is about 8 km away. For about five transactions a quarter (including debt funds) the petrol cost, to and fro, is about 6 liters of petrol or 300 rupees.

The HDFC deal is good enough for me. Until of course, I get my online registration with all mutual fund companies that I invest with. Of course I only do debt funds now and some tax saver funds, and for equity I will invest direct myself. Your mileage may vary.

Do tell me about the cost other distributors or online sites, if you know any.

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