Get the load off your chest
Jun 02, 2004

Author: PersonalFN Content & Research Team

Of late, a lot of fund houses have been raising the entry loads on their schemes. What this means to the investor is that a slightly higher component of his investment monies will go towards meeting the funds expenses in other words his disposable investable assets will decline.

Amid service tax issues and refusal of the distributor community to share the same, fund houses are now passing on the burden of service tax to the investor by hiking the entry loads.

More load on the investor

	Load
	Old (2.00%)	New (2.25%)
Amt invested	10,000.0	10,000.0
Load	200.0	225.0
Net amt	9,800.0	9,775.0

To give investors a perspective on how mutual fund loads in India compare vis-à-vis loads in developed markets like the US, we have taken some leading diversified mutual funds in that market.

Fully loaded

	Franklin Aggressive Growth	Franklin Large Cap Value	Putnam Growth Opportunities
Amount invested	10,000.0	10,000.0	10,000.0
Load	575.0	575.0	525.0
Amount invested	9,425.0	9,425.0

As is evident from the table, loads in the US are more than twice those in India. This is largely because some fund houses in the US believe that mutual funds are sold and not bought. There are higher marketing/sales expenses and fund distributors get higher payouts. Is this a shape of things to happen in India? Time will tell. Hopefully, funds in India will first put in some performance before they begin to charge loads of such a nature.

So what must investors do in the face of higher loads? One way is of course to take it on the chin, because you hardly have a choice. You cant stop investing in a good equity fund because you have an issue with the loads! At some stage investors have to pay for performance.

One way to take care of the higher load is to evad it. A lot of fund houses waive off the loads for investors who opt for the systematic investment plan (SIPs). Lets see how a load waiver can help you spruce up returns.

No load

Amt invested	Load	Net amt (Rs)	No. of months	CAGR	After 3 years
25,000.0	-	25,000.0	12	12%	387,482.2
25,000.0	2.25%	24,437.5	12	12%	378,763.8

On a monthly investment of Rs 25,000 over 12 months compounded over 3 years, the difference between the 2 options amounts to Rs 8,718.4. The difference is actually 2.25%, which is the load you pay in the second option. However, in absolute terms Rs 8,718.4 is a significant number and if the SIP amount is raised to say Rs 50,000 the difference doubles to Rs 17,436.8.

Loads have a significant bearing on your investments. And if you can avoid it, you should. Remember, the idea is to get as much as money as possible working for you. So dont burden yourself with the load, get it off your chest.

If you are in Mumbai and need help in planning your finances, give us a call .We are experienced and qualified and are in a position to meet your requirements. Not in Mumbai? Still want to benefit from our research on mutual funds? Subscribe to FundSelect!