I don’t understand the new MF transaction charges. Will I have to pay Rs 100 when I transact Rs 10,000 via my online account with the MF or will I be charged at the time of opening the account? Will I be charged throughout the SIP tenor?
There are two important things to understand about the new fee structure announced by the Securities and Exchange Board of India. One, it cannot be charged if you deal directly with the MF (mutual fund) company (online or offline). Two, it is not a mandatory fee; so not every distributor or service provider charges it. There are independent MF service providers who have announced that they will not charge this fee. So there are quite a few options for you if you don’t want to pay this fee.
However, if you choose to go through a distributor who charges this fee, please note that the Rs 100 fee will be deducted from each investment transaction that is more than Rs 10,000. For SIPs, a total of Rs 100 will be collected over the course of the first two-three instalments (say, Rs 50 per instalment). If you are a first-time investor, the charge would be Rs 150.
I would like to invest systematically in gold. Please tell me which is a better way to go about it—gold exchange-traded funds (ETFs) or gold mutual funds (MFs)? Which is less expensive? Where can I get better returns?
For investment through a systematic investment plan (SIP), one should go for gold MFs. These are fund-of-funds that invest in gold exchange-traded funds (ETFs) issued by the same company. Gains from both get the tax treatment that debt MFs get. In case of debt MFs, short-term capital gains are taxed as regular income while long-term capital gains are taxed at 10% without indexation and 20% with indexation. From the cost perspective, gold MFs have a slightly higher fund management cost (ETFs charge 1%, while gold MFs charge 1.25-1.5%). Gold ETFs, on the other hand, incur brokerage expenses and demat account maintenance charges (MF investments do not require a demat account). Returns from both investments will be equivalent since the MF merely turns around and invests in the ETF.
However, the reason for recommending SIPs in gold MFs over ETFs is that the former allows rupee-based investing. With ETFs, one can buy only in terms of units of gold and cannot hold fractional units. For example, if one has an SIP of Rs 5,000 and the price of gold is Rs 2,600 per gram, the remaining Rs 2,400 will lie idle in the trading account without getting invested. Whereas in the case of MFs, all RS 5,000 will get invested and you will have 1.923 units of the fund allotted for the investment. So, MF investing in this case carries out the intent of the investor in a truer fashion than investing in ETFs.
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