What is Entry Load in Mutual Fund? 

Posted on

There are many types of investors in the market. Some want to take a risk and others want to opt for a safe option. Mutual funds have remained a reliable and safe investment option for many years. Our elders have always advised us to invest in mutual funds. Since we are on the subject of mutual funds, this is an appropriate time to inform our dear readers that while it feels that mutual funds have been around forever, there are still a few terms related to it that many won’t even have heard of. We are talking about entry load in mutual fund. In this article, we will inform you about entry load in detail including entry load in mutual fund formula and entry load in mutual funds in India.

What is Entry Load in Mutual Fund?

Piggy bank
Photo by Andre Taissin on Unsplash

Before you invest in anything, it is important to have a thorough grasp of all the key terms and concepts so that you are assured about your money. Mutual funds have many complicated terms attached to them which are required to be understood. Entry load is one such term. But before we dwell on that let us learn some more about mutual funds.

What are Mutual Funds?

Man picking up coin | Entry Load in Mutual Fund
Photo by Towfiqu barbhuiya on Unsplash

They say never ask a man their salary, a woman their age, and an old person about mutual funds until you are really willing to get yelled at in the first two cases and get a heartfelt and passionate answer in the last case. Mutual funds are one of the true go-to options for people with extra money who are willing to risk it with investment, at least that’s what older people would say.

Today, we have a cryptocurrency market and a stock market that we can’t look beyond; mutual funds are the equivalent of that from their time, just less risky and heart-numbing than what we have here. When we talk about mutual funds we talk about a safe and less risky investment that promises at least a guaranteed return or sufficient earning while also keeping your money safe and occupied.

A mutual fund can be said to be a scheme or investment where you are willing to put in your extra money. In a mutual fund, your money is collected and clubbed with the money received from several people like you who invest in these things. This clubbed amount is then invested in various stocks, bonds, etc., and is overlooked by experts and managed by professionals. Now depending on the scheme that you signed up for you may earn regular profits, profit after a certain time period, or as mentioned in the terms and conditions of your investment. If all your paperwork is correct and if you don’t have any sort of greed then the success ratio of your investment can stand at 100% which is not very easy to achieve with any sort of investment.

Types of Mutual Funds as per Asset Class

Man writing something
Photo by JESHOOTS.COM on Unsplash

Mutual funds can be divided as per the goal of the fund and the asset that it relies on. Based on asset class, there are two types of mutual funds.

Equity mutual funds

As the name suggests, this type of mutual fund is connected with equity shares. Investing in this mutual fund means that you are indirectly investing money in stocks of various companies and thus, your risk taken is comparatively higher and so is your return/reward percentage. If you have market knowledge and can bear high fluctuations, then this is the correct market for you. Under Equity mutual funds you have further divisions which are Large-cap equity funds, mid-cap equity funds, small-cap funds, Multi-cap funds, and Sector-based Equity funds.

Debt mutual funds

On the opposite end of the spectrum, we have Debt mutual funds which are more secured investments that are done for a fixed period and churn out profits at regular intervals. Here, the money collected is invested in top-rated assets like government securities, corporate bonds, etc. The risk is less and that is why earnings are also comparatively small compared to equity mutual funds. Types of Debt mutual funds include Dynamic bond funds, liquid funds, income funds, short-term and ultra short-term debt funds, Gilt funds, Credit Opportunities funds, and Fixed maturity plans.

Types of Mutual Funds as per Investor’s goals

Analyzing graphs | Entry Load in Mutual Fund
Photo by Lukas on Pexels

Apart from assets, you also have mutual funds that are dependent on the goal of the investment/investor. These types of mutual funds include:

Growth Oriented Scheme

Since the main objective of this investment is growth, it is suitable for people who are looking to earn returns over the medium or long term. More than 65% of the sum invested in this type of mutual fund is put into equities and the fund manager keeps making changes to the portfolio in accordance with market movements to make as much money as possible to give away higher returns.

Income Oriented Scheme

Coins
Photo by Steve Johnson on Pexels

Opposing the previous kind we have income-oriented schemes which are investments that are looking to give out income at fixed intervals. Here the investments are made in strong-rated assets that give away returns at fixed time periods. So naturally, the amount earned here is not that huge and wealth creation does not take place. However, if you are someone who wants to take low risks then this is the right investment for you.

Balanced fund

A combination of the above two investment schemes can be obtained here. Here the fund obtained is mixed and matched and invested in top-rated assets as well as in the equity market with the combination usually being 40-60. This is the type of investment that aims to give out fixed returns clubbed with reasonable returns. People who need the best of both worlds can opt for this type of investment that is less risky than a growth-oriented scheme but has higher returns than an income-oriented scheme.

Liquid fund

If you are someone who is looking for short-term and safe investments, then this is the correct one for you. Here the money is invested in assets like commercial paper, interbank call money, etc. The volatility is less and, the investors get to earn more money than they would make in a savings bank account.

Also Read: What do we mean by Exit Load in Mutual Fund?

Entry Load in Mutual Fund

Coins in a jar | Entry Load in Mutual Fund
Photo by micheile dot com on Unsplash

There are two types of load when we talk about mutual funds. There is an entry load in mutual fund and an exit load. As the name suggests, they have to do with an investor’s entry and exit. When we talk about entry load we are talking about a charge that you as an investor have to pay when you wish to join a company as an investor or are newly entering a mutual fund scheme.

Similarly, when you exit a scheme within a certain period after joining the scheme then you have to pay an exit fee which is known as exit load. There are formulas using which the entry and exit load can be calculated. Certain mutual funds may not have an exit load in their terms and conditions and therefore it is always recommended that one does their research before becoming a part of any mutual fund investment.

Entry load in Mutual Fund Formula

Calculator
Photo by Marina Agrelo on Pexels

Entry load in mutual fund formula needs only two elements to be calculated. You must know the Net Asset Value (NAV) and the percent that is chargeable as an entry fee. Let’s say that the fee you are being charged is 5% and the net asset value is 100 rupees, then that would make your entry load rupees 5.

For calculating exit load you still need net asset value and the percent being charged as exit load, however, here you also need the number of units that you are withdrawing. So taking the numbers from above, let’s say you wish to sell 1,000 units from your investment. So now you would need to multiply 5% with 100 and 1,000 rupees and that would give you an exit load of 5,000 rupees. Hopefully, you have now understood entry load in mutual fund formula.

Entry Load in Mutual Funds in India

Different mutual fund companies used to charge entry load differently. Usually, the entry load would be 2.25% in India, however, this was before August of 2009. SEBI instructed companies to take away any such charges and since then there hasn’t been an entry load in India. So now entry load in Mutual funds in India stands as non-existent.

How can you Invest in Mutual Funds?

Brainstorming over paper | Entry Load in Mutual Fund
Photo by Scott Graham on Unsplash

It is the age of the internet and investing in mutual funds has never been easier. If you were to invest in mutual funds today, then you could do so by.

Direct Investment

You can download the online form of the company where you want to invest or straightaway search for their office and go there and fill out a form and submit it. This is one of the most preferred methods of investing in mutual funds compared to others.

Online Platform

Person using laptop
Photo by Christin Hume on Unsplash

From the comfort of your home, you can search for an online platform that guides you throughout the process. There are online investment platforms that will help you search for the best investment path for you by checking risks, objectives, etc. By entering your PAN card details along with other necessary documents, you are good to go.

Demat Account

By having a Demat account with a company that allows you to invest money in mutual funds, you can choose to go for this option. In your investment company choose to buy mutual funds, make sure your bank details are entered, purchase mutual funds, and make the payment for your purchase, and then it’s done.

Karvy or CAMS

Go on Karvy or CAMS website, create an account and then enter a folio number. Later select a scheme and make payment for it. This is how you purchase via these platforms online. If you want to buy via offline means then head to their local office, completely film the form, and submit a canceled cheque and other necessary documents.

Also Read: What XIRR means in Mutual Funds?

Mutual Funds Agent

Handshake | Entry Load in Mutual Fund
Photo by Sora Shimazaki on Pexels

The oldest and most reliable method will always be a person-to-person service. Though a bit pricey but very reliable and personal in nature, this method requires you to get in touch with a sales agent who will get all the necessary documents from you and help you with any and every question that you may have. Today you can also get a digital helper; however, getting an agent to help you with mutual fund needs in person is the best possible option.

It is possible that the uncharted territories always scared you and pushed you away from mutual funds, but now you know everything that your parents would have wanted you to know. We now know not only what mutual funds are but also the sheer number of types of mutual funds that you can choose from when planning on getting one for yourself. We now also know some terms about mutual funds that are not discussed often.

Even though it is outdated, entry load in mutual fund is an important concept to understand. We hope after reading this article you understand the entry load in mutual fund formula and the status of entry load in mutual funds in India. Mutual funds are a lucrative investment option but as we have seen with entry load, things keep changing in the world of mutual funds. So make sure you are up to date with the recent changes in mutual funds and their old and new concepts. Happy investing!

Source Reference : https://moneymint.com/what-is-entry-load-in-mutual-fund/