Mutual fund investments may involve different charges depending on the scheme, transaction type, and regulatory provisions. Entry load was one such charge that applied when investors purchased mutual fund units in the past. The Securities and Exchange Board of India (SEBI) abolished entry loads for mutual fund schemes from August 2009 to make them more transparent and cost-effective. Understanding the earlier structure provides context for how mutual fund costs have changed over time. Investors today may instead find expenses such as the Total Expense Ratio (TER), exit load, and certain transaction charges, depending on the investment and scheme.
What is Entry Load in Mutual Funds?
The entry load refers to a fee charged when an investor purchases mutual fund units. It was generally calculated as a percentage of the investment amount and deducted before units were allotted.
For example, if an investment of ₹10,000 was subject to a 2% entry load, ₹200 would have been charged as the entry load and ₹9,800 would have been available for investment in the scheme.
SEBI abolished entry loads for all mutual fund schemes with effect from August 1, 2009. Therefore, mutual fund schemes currently cannot charge an entry load on purchases, additional purchases, or switch-in transactions.
How Did Entry Load Work?
The following example explains how entry load worked before its abolition.
- Investment amount: An investor decided to invest ₹10,000.
- Entry load: Suppose the applicable entry load was 2%.
- Load calculation: ₹10,000 × 2% = ₹200.
- Amount invested: ₹10,000 − ₹200 = ₹9,800.
- Unit allotment: Units were allotted based on the applicable NAV.
| Particular | Example |
|---|---|
| Investment amount | ₹10,000 |
| Entry load | 2% |
| Entry load charged | ₹200 |
| Amount invested | ₹9,800 |
The actual entry load applicable before August 1, 2009, varied based on the scheme and prevailing rules.
Why Did SEBI Abolish Entry Loads in 2009?
The Securities and Exchange Board of India (SEBI) abolished entry loads on all mutual fund schemes from August 1, 2009. The change meant that the full investment amount became eligible for unit allocation without deduction of an entry load. It also changed the earlier structure of upfront commissions linked to mutual fund investments.
The abolition of entry loads changed the way mutual fund distribution costs and distributor compensation were handled. Investors could no longer be charged an entry load by the mutual fund scheme, while applicable distribution-related charges and commission arrangements were governed separately under the regulatory framework.
What Mutual Fund Charges Apply Today?
The following are some charges and costs that may apply to mutual fund investments today.
| Charge or Cost | Meaning | When It May Apply |
|---|---|---|
| Total Expense Ratio (TER) | Expenses charged to a scheme for managing and operating the fund | Generally reflected in the scheme's NAV |
| Exit Load | A charge for redeeming or switching units within a specified period | Depends on the scheme |
| Transaction Charges | A charge that may be recovered through a distributor for eligible transactions | Subject to applicable conditions |
| Brokerage and Transaction Costs | Costs related to executing transactions for the scheme | Charged to the scheme as permitted under regulations |
SEBI regulations do not permit mutual fund schemes to levy an entry load. The applicable expenses and load structure can vary across schemes.
What Should Investors Look at Instead of Entry Load?
Since entry load is no longer permitted, the following costs and details may be reviewed before investing.
- Total Expense Ratio: Check the applicable expenses charged by the scheme.
- Exit Load: Review whether a charge applies when units are redeemed or switched within a specified period.
- Transaction Charges: Check whether transaction charges apply through the distributor for eligible investments under SEBI rules.
- Scheme Information Document (SID): Review the scheme's stated expenses, load structure, and other applicable terms.
- Direct or Regular Plan: Compare the expense structure of Direct and Regular Plans before investing
- Taxation: Consider the applicable tax provisions for the mutual fund category and transaction.
The current load structure and applicable expenses can be checked in the scheme's documents and on the mutual fund's website.
Conclusion
Entry load was a charge applied to mutual fund purchases before SEBI abolished it from August 1, 2009. Investors today do not pay an entry load to mutual fund schemes when purchasing units. However, mutual fund investments may involve other costs, including the Total Expense Ratio, exit load, transaction charges, and transaction-related expenses. These costs can vary across schemes and transactions. Reviewing the applicable scheme documents may help investors understand the charges associated with an investment. The current load structure and expense details may also be checked before making a mutual fund investment.
FAQs on Entry Load in Mutual Funds
Are entry loads still charged on mutual funds today?
No. SEBI has abolished entry loads for mutual fund schemes, so schemes cannot charge investors an entry load on purchases.
Can mutual funds still charge entry load in India today?
No. Entry load is not permitted for mutual fund schemes under the applicable SEBI framework.
What was the entry load percentage before 2009?
Entry load percentages varied across schemes and periods. Historical scheme documents may be reviewed for the applicable rate at that time.
What is exit load and how is it different from entry load?
Exit load may apply when units are redeemed within a specified period, whereas entry load applied when units were purchased.
How did SEBI's abolition of entry loads benefit investors?
The change removed the entry load charged by mutual fund schemes and altered the structure for distributor-related payments and costs.
What charges should I check before investing in a mutual fund?
Investors may check the Total Expense Ratio, exit load, transaction charges, applicable taxes, and other costs disclosed in scheme documents.
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