How are the fund management charges incorporated in equity mutual funds?
Equity mutual funds are allowed to charge a maximum expense of 2.50 per cent. This expense ratio comes down as the fund gets larger. The precise rule is that the expense ratio can be 2.50 per cent for the first Rs 100 crore under management, which comes down by 25 basis points for the next Rs 300 crore, and 25 basis points more for the next Rs 300 crore. This expense ratio is applied on a pro-rata basis daily for open-end funds and is deducted from the NAV. So, if a fund is charging 2.50 per cent, then 2.50 per cent of the total assets under management, dividend by 365 will be deducted from that day’s NAV. And since entry load is abolished, there are no other charges levied by the fund, unless there is an exit load applicable when you redeem your investments.